UPS: A Parcel of Potential?

by

Right then. UPS. A company that, for generations, has been in the business of moving things from one place to another. A seemingly simple endeavour, you might think. But simplicity, as any seasoned portfolio manager – or, indeed, any wizard attempting a basic levitation spell – will tell you, is often a deceptive illusion. They’ve recently announced some numbers, and, well, let’s just say the market’s reaction was less a fanfare and more a polite cough. They’re projecting free cash flow of $6.5 billion by 2026. A considerable sum, certainly. Enough to cover the dividends, which currently yield a respectable 6.1%. The question isn’t whether they can pay the dividends, but whether they’re using their magical accounting to avoid addressing the fundamental issue of, shall we say, delivering actual value.

The Prognosis

The guidance, you see, is better than what the scribes of Wall Street were expecting. Though, as CFO Brian Dykes pointed out some moons ago (October, to be precise), this wasn’t exactly a surprise. He’d hinted at it, like a fortune teller offering a vague prediction about a rainy Tuesday. “We expect it to be above that,” he said, referring to the dividend cover. A statement that, in the world of high finance, is roughly equivalent to a wizard saying, “I believe I can conjure a rabbit.” It’s not a guarantee, merely an expression of optimistic intent.

Loading widget...

The Art of the Parcel

The current strategy, as I understand it, involves a shift in focus. Away from the low-margin business of delivering… well, everything to everyone (a recipe for logistical chaos, believe me), and towards more profitable deliveries. Small and medium-sized businesses, healthcare operations – the sort of clients who appreciate a timely delivery and don’t quibble over a few coppers. And, crucially, away from the behemoth that is Amazon. A move, I suspect, born less of strategic brilliance and more of sheer exhaustion. Dealing with Amazon is like trying to herd cats… made of iron… that bite.

This requires investment, naturally. Automation, smart facilities. They’re closing buildings – 93 in 2025, with another 24 planned for the first half of 2026. A rather drastic measure, one might think, but then again, sometimes you need to dismantle the old alchemical workshop before you can build a proper laboratory. They’ve automated 127 buildings, and plan to reach 68% automated volume by the end of 2026. Apparently, automated buildings are 28% more efficient. Which is good. Efficiency is always good. Though I suspect the goblins who used to work in those buildings might disagree.

They expect costs per piece to normalize, which is a polite way of saying they’re hoping to stop the bleeding. Revenue per piece, meanwhile, is expected to grow. A mid-single-digit percentage. A modest figure, perhaps, but in the world of logistics, even a small improvement can be significant. The idea is to reach a point where revenue per piece exceeds cost per piece. A turning point, they call it. A moment of… not quite triumph, but perhaps… relief. The first half of 2026 is expected to be rough, with declining revenue and squeezed margins. But they’re hoping for a reversal in the second half, as the new strategy takes hold. A bit like a potion that takes a while to brew, but eventually delivers the desired effect.

A Parcel of Hope?

The forecast is for slightly better revenue growth and similar operating profit. Not exactly a spell of spectacular growth, but a solid, if unspectacular, performance. The main takeaway is that UPS is aiming for a turning point. By the end of 2026, they hope to have expanded margins, increased revenue per piece, and reduced their reliance on the whims of Amazon. They’re also planning another $3 billion in cost savings, which will involve laying off 30,000 workers and closing more buildings. A rather grim prospect, of course, but in the world of high finance, sentimentality is a luxury few can afford. They’re also reducing capital spending. Which is… interesting.

Metric 2024 2025 2026 Estimate
Revenue $91.1 billion $88.7 billion $89.7 billion
Adjusted operating profit margin 9.8% 9.8% 9.6%
Adjusted operating profit $8.9 billion $8.7 billion $8.6 billion

So, is UPS stock a buy? Well, it’s attractive for those seeking passive income. But it requires patience. The benefits of this strategy won’t be immediately apparent. And one has to wonder: are the cuts in capital spending and the generous dividends hindering investment in automation and technology? Or in revenue-generating opportunities? It’s a valid question. A portfolio manager must always consider the long-term implications.

UPS looks like a cautious buy right now. But there’s still a lot of work to do before it delivers on its promises. It’s a parcel of potential, certainly. But whether it will actually reach its destination remains to be seen.

Read More

2026-02-02 05:24