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Proprietary Data Insights Financial Pros’ Top Integrated Logistics Stock Searches in the Last Month
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Fin Pros Are Clear: UPS Warns of a Recession |
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Equities shattered like glass, sliding lower after United Postal Service (UPS) reported miserable earnings last week. Sharply lower revenues and volumes sent shares spiraling after the latest earnings report. Financial pros spent a lot of time looking at the company’s financials and the earnings call transcript, according to our TrackStar data. UPS is still an incredibly profitable company. But is it time to snap up shares? UPS’ Business In a world driven by connectivity, United Parcel Service (UPS) stands as a stalwart of global shipping and logistics solutions, binding continents with its promise of speed, reliability, sustainability, and innovation. UPS delivers an extensive array of services catering to diverse clientele needs, from time-definite and deferred to a more bespoke range of logistics, distribution, and financial services. The company segments its business into the following areas:
The third quarter of 2023 didn’t paint a rosy picture for UPS, with reported revenues of $21.1 billion marking a 12.8% drop from the previous year, combined with EPS of $1.31, down 56% YoY.
Source: UPS Q3 2023 Earnings Presentation Domestic shipping suffered a volume dip due to labor disruptions, a scenario that diverted a chunk of shipping volume to other players. This episode, albeit temporary, shaved off a significant revenue slice, underscoring the delicate dance between operational intricacies and financial performance. Despite these headwinds, the quarter highlighted UPS’s resilient stride towards operational efficiency, with a notable uplift in healthcare and e-commerce service demands. Financials
Source: Stock Analysis 2023 marks the first year in a decade revenues fell. Yet, gross margins held remarkably steady around 23.5%. However, profit margins jumped substantially in the last few years as compensation and benefits dropped as a percentage of revenue dropped by 5%. Given the recent concessions to the unions, we don’t expect those to remain low. That means the company will need to find a way to improve free-cash-flow margins, which have fallen over the last two years. Management’s done a good job of keeping debt flat, leaving them plenty of room to invest where they need. Valuation
Source: Seeking Alpha We were a bit surprised to find the two major package shippers, UPS and FedEx (FDX), trading at the lowest P/E multiples of the group. However, UPS trades at a higher price-to-cash flow than its peers. Even the company’s price-to-sales ratio is at the higher end. Growth
Source: Seeking Alpha Every shipper saw revenues drop this year. However, JB Hunt (JBHT) and FedEx forecast modest growth for 2023 to early 2024. They’re also the only ones expecting to see earnings growth during that same period. Clearly, the shippers all forecasting low to negative growth indicate a recession on the horizon. Profitability
Source: Seeking Alpha UPS’s gross margins are good but not as high as FedEx’s. When it gets down to EBIT margins, it’s the highest of the group. But with free cash flow, Expediters International (EXPD) comes out leaps and bounds ahead, as does CH Robinson Worldwide (CHRW). However, both are brokerage-based models without owned assets. So this isn’t entirely surprising.
Our Opinion 6/10 We feel the headwinds facing UPS warrant additional caution. Although shares are down, we expect earnings to shrink as labor costs rise. Given the better growth prospects, we prefer FedEx over UPS if you want a logistics investment. |
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