People see United Parcel Service’s brand as like a “middle-aged man at a bar drinking whiskey,” the logistics company told investors. UPS wants to change that, morphing into a modern, innovative, digital-centric brand.
Making the shift, and other changes, will position UPS to benefit from substantial growth in shipping it believes is on the way, management said at a Wednesday presentation to review its business prospects for the next few years.
Global supply chains are going to grow in complexity. The company, for instance, sees small-package shipping in the U.S growing from $452 billion to $596 billion by 2023, for an average annual gain of about 10%. Shipping small packages to many customers is more complicated than shipping bulk orders to distribution centers.
UPS plans to boost digital investment to meet that challenge and make it easier for customers to use the service.
The rising demand is good news for UPS and peers, but the flip side is negative for companies and individuals shipping goods. Prices are expected to remain elevated. Airfreight capacity isn’t coming back from the pandemic as fast as demand is rising.
UPS is projecting $100 billion in sales and $13.2 billion in operating income as the midpoints of new financial goals it laid out for 2023. That implies growth in sales and operating income of about 6% and 15% a year on average, respectively. Over the past three years, UPS’s sales grew almost at that rate, but operating income only grew about 5.5% a year on average.
The business is expected to get more profitable. And the 2023 goals compare favorably to current projections on Wall Street. Analysts’ financial models point to 2023 sales and operating income of roughly $100 billion and $12.6 billion, respectively.
The level of operating income UPS projected in its new target works out to roughly $13 a share, about $1 better than the $12.03 in per-share earnings projected by analysts.
It is a long-term positive earnings surprise, but UPS stock was down about 4% in midday trading. The S&P 500 and Dow Jones Industrial Average, for comparison, were both up about 0.1%.
Investors might have wanted a little more. Deutsche Bank analyst Amit Mehrotra wrote in a preview report that he believes the company can earn $15 a share by 2024. That isn’t off the table, but management’s projections only go to 2023.
And a lot of good news is already reflected in the stock price. Year to date UPS stock has been strong, rising roughly 20%. That’s another reason the stock was down Wednesday.
But if pricing remains high, as the company expects, more gains could be coming.