UPS plans more international acquisitions
UPS will continue to buy express and parcel companies around the world to expand its highly profitable international business, according to senior executives. At the same time, it aims to grow its air freight and supply chain logistics activities to penetrate its large customer base more deeply.
“We will make acquisitions as we see fit around the world,” CEO Mike Eskew told the company’s November 8 Investor Day conference. Chief Financial Officer Scott Davis added that UPS saw “ acquisition opportunities” in the global small package business but stressed the company would be careful in selecting these takeovers.
Davis pointed out that UPS aimed for International to grow to 33% of operating profits by 2010 compared to 24% in 2006, with supply chain doubling to 7% and domestic operating profits dropping from 73% to 60% of overall operating income. UPS aimed to maintain or extend its international profit margins and maximise international operating profits, he added.
David Abney, head of UPS’s international business, said in a presentation that Europe now generated about 50% of UPS’ international revenues, ahead of 30% for the Americas (including US exports) and 20% for Asia. In Europe, UPS aimed to grow organically and through selective acquisitions, while deepening customer relationships and differentiating products in core markets such as Germany and the UK.
In Asia, UPS was gaining critical mass, he said. The company now had 45 fully-owned centres in China covering 330 cities and 85% of China’s international trade. It was investing in Japan by opening four more operating centres, and had expanded its business in India this summer with a new next-day India to Europe service. In the Americas, UPS had increased its presence in Mexico with 13 new centres, he added.
CEO Mike Eskew told investors that UPS saw strong growth opportunities in the heavily fragmented international air freight sector, where it had just a 3% share of the USD48 billion market.
He added that UPS is sticking to plans to grow its logistics business despite 1,200 layoffs in the USA to reduce cost overheads. Admitting that the integration of overland freight transport company Overnite had been “tougher” than expected, Eskew commented: “We know we have to execute better than we have.” But he reiterated that the Supply Chain business was expected to break even in Q4, 2007, and make big gains in 2007.
In terms of contract logistics, Eskew said: “UPS does not aspire to be in the contract logistics business for its own sake. We do not intend to be all things to all customers… we will rationalise our portfolio as appropriate.”
Speaking the day after FedEx announced it would cancel its USD2.3 billion order for ten A380 freighters, Eskew said UPS was reviewing its own USD2.5 billion order for ten mega-freighters but stressed that it was under no time pressure to take an immediate decision on the issue.
