{"id":58850,"date":"2023-08-08T06:00:35","date_gmt":"2023-08-08T10:00:35","guid":{"rendered":"https:\/\/www.ino.com\/blog\/?p=58850"},"modified":"2023-08-21T14:01:17","modified_gmt":"2023-08-21T18:01:17","slug":"will-united-parcel-service-ups-soar-despite-ongoing-controversy","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2023\/08\/will-united-parcel-service-ups-soar-despite-ongoing-controversy\/","title":{"rendered":"Will United Parcel Service (UPS) Soar Despite Ongoing Controversy?"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">\u00a0The past few weeks have been challenging for logistics giant<\/span><a href=\"https:\/\/quotes.ino.com\/charting\/?s=NYSE_UPS\"> <span style=\"font-weight: 400;\">United Parcel Service, Inc. (UPS)<\/span><\/a><span style=\"font-weight: 400;\"> as it faced the prospect of a crippling labor strike if the company did not agree to a new contract containing the demands put forward by the International Brotherhood of Teamsters, the labor union representing the nearly 330,000 workers of UPS.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0The Teamsters have been demanding better pay, especially for part-time employees, and improved working conditions. The workers were scheduled to go on strike from August 1, 2023, without an agreement. However, UPS and Teamsters reached an agreement on July 25, 2023, potentially avoiding the strike, which could have crippled U.S. supply chains and impacted the economy.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0Earlier in June, UPS announced its agreement with Teamsters on new heat safety measures, which build upon the company's important actions in February. The company has agreed to equip newly purchased<\/span><a href=\"https:\/\/about.ups.com\/us\/en\/newsroom\/press-releases\/people-led\/ups-statement-agreement-with-teamsters-on-heat-safety.html\"> <span style=\"font-weight: 400;\">U.S. small package delivery vehicles with air conditioning<\/span><\/a><span style=\"font-weight: 400;\"> starting January 1, 2024. After equipping over<\/span><a href=\"https:\/\/about.ups.com\/us\/en\/our-company\/great-employer\/5-ways-ups-is-improving-heat-safety-for-employees.html\"> <span style=\"font-weight: 400;\">95,000 package cars with a cooling fan<\/span><\/a><span style=\"font-weight: 400;\">, UPS will install a second fan in vehicles without air conditioning by June 1, 2024.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0It also agreed that exhaust heat shields will be included in the production of new package cars and will be retrofitted into existing package cars within 18 months of contract ratification. Despite these agreements, UPS and Teamsters remained at odds over pay and benefits for part-time workers that comprise a significant part of UPS\u2019 workforce.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0The deadlock was finally broken a few days before the potential strike as UPS and Teamsters reached a preliminary labor deal that included raises for full- and part-time workers. Under the tentative agreement, all UPS union employees would receive a<\/span><a href=\"https:\/\/www.cnbc.com\/2023\/07\/25\/ups-teamsters-reach-contract-to-avoid-strike-union-says.html\"> <span style=\"font-weight: 400;\">$2.75-an-hour<\/span><\/a><span style=\"font-weight: 400;\"> raise this year and a $7.50-an-hour pay increase over the next five years. Its part-time workers\u2019 pay would start at $21 an hour, up from the $16.20 per hour currently.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0Teamsters General President Sean O\u2019Brien said the agreement was worth $30 billion. In a statement, O'Brien said, \u201cWe\u2019ve changed the game, battling it out day and night to ensure our members won an agreement that pays strong wages, rewards their labor, and doesn\u2019t require a single concession. This contract sets a new standard in the labor movement and raises the bar for all workers.\u201d<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0UPS CEO Carol Tom\u00e9 said, \u201cTogether, we reached a win-win-win agreement on the issues that are important to Teamsters leadership, our employees, and to UPS and our customers. This agreement continues to reward UPS\u2019s full- and part-time employees with industry-leading pay and benefits while retaining the flexibility we need to stay competitive, serve our customers and keep our business strong.\u201d<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0The five-year agreement is subject to union members' voting and ratification from August 3 till August 22. UPS released its second-quarter earnings with its EPS coming 4 cents above the consensus estimate, while its revenue missed the Street estimates by $1.06 billion.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0After its second-quarter earnings report, UPS lowered its revenue estimate by $4 billion. It now expects its fiscal 2023 revenue to be $93 billion, and the company also lowered its adjusted operating margin to 11.8%, down from the previous estimate of 12.8%. It expects a capital expenditure of $5.3 billion.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0UPS\u2019 stock has gained 4.8% in price year-to-date. However, it has declined by 7.4% over the past year.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0Here\u2019s what could influence UPS\u2019 performance in the upcoming months:<\/span><\/p>\n<p><b>Disappointing Financials<\/b><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0UPS\u2019 total revenue for the second quarter ended June 30, 2023, declined 10.9% year-over-year to $22.06 billion. Its adjusted operating profit decreased 18.4% over the prior-year quarter to $2.92 billion. The company\u2019s adjusted operating margin came in at 13.2%, compared to 14.4% in the prior-year quarter.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0Its adjusted net income declined 24.1% year-over-year to $2.19 billion. In addition, its adjusted EPS came in at $2.54, representing a decline of 22.8% year-over-year.<\/span><\/p>\n<p><b>Mixed Analyst Estimates<\/b><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0Analysts expect UPS\u2019 EPS and revenue for fiscal 2023 to decline 17.9% and 3.7% year-over-year to $10.63 and $96.59 billion, respectively. Its EPS and revenue for fiscal 2024 are expected to increase 9.9% and 4.3% year-over-year to $11.68 and $100.77 billion, respectively.<\/span><\/p>\n<p><b>Mixed Valuation<\/b><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0In terms of forward non-GAAP P\/E, UPS\u2019 17.14x is 4.3% lower than the 17.90x industry average. Its 11.20x forward<\/span><a href=\"https:\/\/www.investopedia.com\/terms\/e\/ev-ebitda.asp\"> <span style=\"font-weight: 400;\">EV\/EBITDA<\/span><\/a><span style=\"font-weight: 400;\"> is 0.4% lower than the 11.25x industry average. Likewise, its 14.33x forward EV\/EBIT is 8.5% lower than the 15.66x industry average.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0On the other hand, in terms of forward Price\/Book, UPS\u2019 7.19x is 175.6% higher than the 2.61x industry average.<\/span><\/p>\n<p><b>High Profitability<\/b><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0In terms of the trailing-12-month net income margin, UPS\u2019 10.90% is 74.9% higher than the 6.23% industry average. Likewise, its 16.23% trailing-12-month EBITDA margin is 20% higher than the industry average of 13.53%. Furthermore, the stock\u2019s 4.88% trailing-12-month Capex\/Sales is 67% higher than the industry average of 2.93%.<\/span><\/p>\n<p><b>Solid Historical Growth<\/b><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0UPS\u2019 revenue grew at a CAGR of 9.7% over the past three years. Its EBITDA grew at a CAGR of 16.7% over the past three years. Moreover, its EPS grew at a CAGR of 35.8% over the past three years.<\/span><\/p>\n<p><b>Bottom Line<\/b><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0The agreement UPS reached with Teamsters will cost it $30 billion in additional spending over the five-year contract period, increasing its costs significantly.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0Additionally, the threat of the strike still lingers as many union members could vote against the ratification as they were not pleased with the $21 per hour pay for part-time workers. They were expecting a wage of around $25 per hour.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0Furthermore, UPS faces stiff competition from<\/span><a href=\"https:\/\/quotes.ino.com\/charting\/?s=NYSE_FDX\"> <span style=\"font-weight: 400;\">FedEx Corporation (FDX)<\/span><\/a><span style=\"font-weight: 400;\">. Given the mixed analyst estimates and valuation, waiting for a better entry point in UPS shares could be wise.<\/span><\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>\u00a0The past few weeks have been challenging for logistics giant United Parcel Service, Inc. (UPS) as it faced the prospect of a crippling labor strike if the company did not agree to a new contract containing the demands put forward by the International Brotherhood of Teamsters, the labor union representing the nearly 330,000 workers of [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":41,"featured_media":58749,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[32348,32347,32346,32349,32214,32213,32345,32212],"class_list":["post-58850","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-2-75-an-hour","tag-000-package-cars-with-a-cooling-fan","tag-32346","tag-ev-ebitda","tag-fedex-corporation-fdx","tag-inc-ups","tag-u-s-small-package-delivery-vehicles-with-air-conditioning","tag-united-parcel-service"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.4 (Yoast SEO v23.6) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Will United Parcel Service (UPS) Soar Despite Ongoing Controversy? - INO.com Trader&#039;s Blog<\/title>\n<meta name=\"description\" content=\"Meta Description: After facing the prospect of a labor strike, logistics giant United Parcel Service (UPS) reached a preliminary deal with the labor union Teamsters, representing a significant part of its workforce. 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