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UPS: Poised to Deliver Long-Term Growth

United Parcel Service (UPS) is the world’s premier package delivery company and a leading provider of global supply chain management solutions serving customers in more than 220 countries and territories, notes Ingrid Hendershot, President of Hendershot Investments, an investment management firm, and editor of Hendershot Investments, a quarterly investment newsletter.

The global market for these services includes transportation, distribution, contract logistics, customs brokerage, insurance and financing. UPS operates one of the largest airlines and one of the largest fleets of alternative fuel vehicles under the global UPS brand. In 2021, UPS delivered an average of 25.2 million packages per day, totaling 6.4 billion packages during the year, including more than 1.1 billion COVID-19 vaccine doses in over 110 countries around the world with 99.9% on-time delivery. Global demand for UPS’s end-to-end delivery services is expected to remain high, rooted in favorable e-commerce trends.

UPS has constructed an immense international transportation network interconnected with one of the largest technological infrastructures in commercial history, unlikely to be replicated by many. Economies of scale, excellent customer service, a strong, trusted brand and operating efficiencies translate into high profitability for the firm.

Strong Cash Flows

UPS has a flexible capital allocation strategy which allows the company to reinvest in its business, make dividends a priority and take a balanced approach to share repurchases. Since going public in 1999, UPS has delivered parcel loads of free cash flow to shareholders via dividends and share buybacks. During the first quarter of 2022, UPS generated free cash flow of $3.9 billion with the company delivering $1.3 billion in dividends to shareholders and repurchasing $254 million of its common stock. UPS plans to pay about $5.2 billion in dividends and doubled its share repurchases for 2022 to a target of $2 billion, reflecting management’s confidence in its financial outlook and position. The stock currently yields a hefty 3.6%.

First Quarter Results

UPS reported first quarter revenues rose 6.4% to $24.4 billion with operating profit up 17.6% to $3.3 billion. Operating margin increased 70 basis points to 13.6% during the quarter as all business units delivered operating growth. Net income and EPS each declined 44% to $2.7 billion and $3.03, respectively, due to a change in pension income from the prior year period.

These were solid financial results despite a challenging macro environment in the first quarter which resulted in daily volume coming in less than planned.

The firm maintains ample liquidity and a solid financial condition. UPS ended the quarter with $12.5 billion in cash and investments, $19.7 billion in long-term debt and financial leases and $15.4 billion in shareholders’ equity.

UPS affirmed its 2022 full-year financial targets with revenue of $102 billion expected with operating profit margins of 13.7% and return on invested capital above 30% for the year.

Long-term investors should consider packaging up UPS for their portfolio. UPS is a high-quality market leader with strong cash flows, a hefty dividend and poised to deliver future long-term growth. “Buy.”

Editor’s Note: Ingrid Hendershot is President and CEO of Hendershot Investments, Inc. an investment management firm offering personalized investment advisory services to individuals, pension and profit sharing plans, trusts, estates, charitable organizations and corporations or other business entities. Hendershot Investments is a quarterly investment newsletter, 1 year, $50, designed for long-term investors seeking capital growth at reasonable valuations. For more information on the services offered by Hendershot Investments visit www.hendershotinvestments.com.

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