UPS will spend $500 million on its international network over the next two years, aims to doubleinternational profits by 2016, will expand its logistics activities and is targeting better margins
in all businesses.The targets and measures were announced by top executives during in-depth presentations onthe company’s 2011-16 medium-term strategy at this week’s investor conference in Louisville.
“We are excited about where UPS is today and expectations for our future as we redefine therole of the global integrator,” said chairman and CEO Scott Davis.“Our long-term outlook remainspositive despite recent economic uncertainty. UPS is well positioned to capture the opportunitiespresented by the mega trends shaping our industry.”
In his presentation, Davis highlighted the potential of countries “beyond the BRICs”, such asColombia, Turkey, Egypt, South Africa, Vietnam and Indonesia, as well as the importance of therising middle class in emerging markets. Moreover, B2C would play a “huge role” in the future, andUPS already covered “every address in North America and Europe”, he added.
Asked about acquisitions, Davis said that the “right package opportunities” remained “top ofthe priority list” but healthcare and freight forwarding were other areas that the company wouldlook at.
UPS Chief Financial Officer Kurt Kuehn presented detailed financial expectations for allbusiness areas for the 2011-16 period. UPS as a whole aimed to increase revenues from $49.5 billionlast year by 6-8 per cent a year on average to reach $72-79 billion by 2016, he said.
In the USA, the company aims to increase domestic package revenues by 5-6 per cent a yearfrom last year’s $29.7 billion and improve the 2010 operating profits of $3.4 billion by 7-10 percent a year. The operating margin target was 14-15 per cent over the next 3-5 years.
Internationally, UPS expected to continue outperforming the market in growth and profits,Kuehn said. Revenues should grow 9-12 per cent a year in the next 3-5 years from last year’s $11.1billion. Profits should improve 10-15 per cent a year and double from $1.9 billion in 2010 by 2016.
The Supply Chain & Freight division, with $8.7 billion in revenues last year, shouldincrease revenues by 8-10 per cent a year, and improve the 2010 profits of $577 million by 12-18per cent annually towards an 8-10 per cent operating margin target. For UPS Freight, the companyexpects to grow revenues from $2.2 billion by 8-10 per cent a year and double the operating marginto about 6 per cent by 2014.
UPS Forwarding, with $3.9 billion revenues in 2010, should grow by 8-10 per cent over thenext five years, targeting an operating margin of 6-8 per cent. Distribution, with $2 billionrevenues, should grow by 5-8 per cent a year up to 2016, and target a 10 per cent operating margin.
Kuehn also reaffirmed the 2011 guidance range for adjusted diluted earnings per share of$4.15 to $4.40, and said that diluted earnings per share are expected to grow 10-15 per cent from2011 to 2016.
Dan Brutto, president, UPS International, told investors that the company will invest a totalof $500 million in international hubs and facilities over the next two years, he said. Apart fromthe $200 million expansion of the European air hub at Cologne, there will be investment in France,other European locations, China, Vietnam, South Korea and Latin America, he disclosed.
In Europe, UPS had averaged 10 per cent export growth a year over the last decade and seesopportunities to “convert freight to small packages” as customers “look for a pan-Europeanintegrated service”, he said. UPS had generated strong growth in Turkey since an acquisition therein 2009, he noted.
In Asia, UPS aimed to become “a top-tier package and logistics player” in China and would “prudently grow” in the domestic express market once it received approval for its licenceapplication, he stressed. In India, where UPS currently offers only import and export, Brutto saidthere is “great potential for significant growth”.
He also highlighted Latin America, and in particular Brazil, Mexico and Colombia as growthmarkets.
Alan Gershenhorn, chief sales & marketing officer, said that UPS has 40.6 per cent of ‘global integrator package share’, ahead of FedEx (26.6 per cent), DHL (24.2 per cent) and TNT (8.5per cent). However, there was still plenty of growth potential as these four companies had just 33per cent of the $383 billion world express and air freight market, he stressed.
In terms of vertical markets, Gershenhorn said that UPS is focusing on healthcare, which is a$60 billion logistics market, high-tech, automotive, retail, government and professional services.He also stressed the importance of the new ‘UPS My Choice’ service, including the option of using4,400 UPS Stores in the USA for alternative delivery. This would enable UPS to build closerrelationships with recipients.
Gershenhorn commented that USPS’ restructuring and streamlining would create opportunitiesfor UPS to compete “more vigorously” in future, even though UPS still remained a cooperationpartner and supplier to the Postal Service.
