UPS Builds Platform for Profitable Growth
UPS expects to grow significantly next year and into the future because of a strategy of building capabilities to synchronize global commerce, company executives said. It is doing so by streamlining its domestic operations, extending the reach of its highly integrated international network and expanding its capability to manage complex supply chains.
Earnings in 2004 should grow between 12-to-18%. By 2007, when UPS celebrates its 100th anniversary, all three of its operating segments should be delivering profit margins over 15%, said UPS Chief Financial Officer Scott Davis.
“We operate in an industry that has great growth opportunities,” Davis said, addressing a UPS Investors Meeting in New York City . “Our business model creates substantial returns and consistency. We believe UPS is as well positioned as any company – in any industry – to capitalize on the way the world of global commerce is changing.”
“We have the ability to envision where we want to go along with the ability to execute to that vision,” added Mike Eskew, UPS's chairman and chief executive officer. “Strong vision on one hand, consummate execution on the other.”
In reviewing the outlook for 2004, Davis said he expected U.S. domestic volume to grow “at a solid 3-to-4 percent rate, and we expect margins in our domestic business to increase by about 100 basis points.” International export volume should grow a strong 8 percent or more with profits increasing about 20 percent, Davis continued. And the supply chain business should achieve revenue increases “in the low double-digit range” while also solidly improving margins.
“The balance sheet should continue to be a thing of beauty as capital expenditures are budgeted at approximately US$2.2 billion, or about 6 percent of revenue … (and) cash flow should continue to be strong,” the CFO said. “We plan to use cash to reinvest in the business, to pay dividends, to buy back stock and, if the right opportunity presents itself, to make acquisitions.”
Eskew and Davis were joined by John Beystehner, senior vice president for worldwide sales and marketing, and David Abney, president, UPS International. Among other highlights of the meeting, the four disclosed:
UPS has embarked on a significant re-engineering of its domestic package network. Using data and technology, it is streamlining the flow of packages throughout its network, from pickup to delivery. This US$600 million investment will make UPS more efficient and flexible. Once fully deployed in 2007, UPS believes it will save at least US$600 million a year.
UPS enjoys the best international margins of any company in the industry and expects even more improvement in the near term, said Abney. Prospects for the international business are bright because of continued growth in global trade; UPS's strong global network; the deployment of leading-edge technology, and a broad product portfolio.
The company has completed the integration of numerous acquired companies into UPS Supply Chain Solutions, “creating a strong competitor with solid global reach,” Davis said. The non-package segment already has achieved its 2003 profit improvement goals with a quarter left to go.
The rebranding of about 3,000 Mail Boxes Etc. centers into The UPS Store – the largest such rebranding in franchising history – has increased UPS volume through the stores by more than 100 percent and also more than doubled franchise applications. The UPS Store is one part of an increased focus on improving retail access points and offers an effective vehicle for pursuing the retail shipping segment now controlled by the U.S. Postal Service.
UPS continues to see strong growth in shipments to the end consumer, driven by Internet purchases and companies pursuing direct-to-consumer business models. The U.S. consumer segment is growing “strongly” and indeed, “we expect this overall segment to grow at 1½ times the rate of overall GDP growth for the foreseeable future,” said Beystehner.
In reviewing the new products and services being assembled to compete in 2004 and beyond, Beystehner also discussed the U.S. small package market in which UPS competes. A review of the U.S. ground segment shows total daily volume is almost 23 million packages and that UPS has a 45 percent share. The air segment comparison shows total daily volume of 6.2 million packages, with UPS holding a 34 percent share.
“I should point out that even though we did lose some share last year during our labor negotiations, UPS is the only carrier that has gained share in both air and ground over the last four years,” Beystehner concluded. “So when you look at the market as a whole, UPS continues to hold a great position in a great market.”
In his presentation, Eskew provided examples of what it means to combine strategic vision and superior execution. By 2007, he said, both individuals and companies that order over the Internet will be more empowered as they easily pull goods directly through the supply chain.
“In 2007, you'll notice that our customers' warehouses are almost empty because they have visibility into their supply pipeline and can see their inventory moving around the world,” the CEO continued. “In 2007, you'll notice that more and more packages come from fulfillment centers that we manage for customers.
“And then, whether you travel through the streets of Vienna or Vietnam , or the rural countryside of Virginia , you'll notice the ubiquity of the UPS brand. The UPS of 2007 will be one of the few U.S. companies that's as successful internationally as we are here at home. We have an organization and a heritage that is execution-driven and results-oriented. We have the experience required to make the right decisions and the discipline to execute.”
