Package delivery company United Parcel Service, Inc. (UPS) experienced demand softness due to unfavorable economic conditions, leading to a sharp drop in its topline figure. For the third quarter, UPS’ total revenue declined 12.8% year-over-year to $21.06 billion, lower than the $21.46 billion expected for the period.
On the other hand, although its adjusted EPS decreased 47.5% from the prior-year period to $1.57, it still topped the analyst estimate of $1.52. UPS’ stock has come under pressure after the company cut its full-year revenue outlook from $93 billion to $91.3 billion-$92.3 billion, citing economic uncertainty.
Despite that, UPS is targeting two acquisitions this year. On October 25, UPS announced that it had entered an agreement to acquire software and reverse logistics company Happy Returns from PayPal Holdings, Inc. (PYPL). This is expected to improve the company’s return footprint.
Given this backdrop, let’s look at the trends of UPS’ key financial metrics to understand why it could be prudent to wait for a better entry point in the stock.
Analyzing United Parcel Service's Financial Performance from 2020 to 2023
The trailing-12-month net income of UPS has been showcasing a noticeable upward trend over the data series period. Over three years, from December 2020 to September 2023, the net income grew significantly from $1.34 billion to $8.56 billion.
- On December 31, 2020, the net income was $1.34 billion.
- The value rose sharply by the end of the first quarter 2021 to $5.17 billion.
- It maintained an upward trajectory, reaching $6.45 billion on September 30, 2021, and surging dramatically to $12.89 billion by the end of 2021.
- The net income slightly decreased to $10.76 billion by March 2022 but then demonstrated an overall consistent increase, peaking at $11.55 billion by the end of 2022.
- However, in 2023, there was a noticeable decline, with net income slightly dipping back to $10.78 billion by the end of the first quarter, further slipping to $10.01 billion in the second quarter and down to $8.56 billion in the third quarter.
The last value in the series, dated September 30, 2023, shows the net income at $8.56 billion, which is quite a decrease compared to its peak in 2022. Despite the recent dip, the overall growth rate from the initial value represents a noteworthy increase.
The trailing-12-month revenue of UPS displayed a general growth trend from December 2020 to December 2022, before experiencing a marked decrease over subsequent quarters.
- At the end of 2020, UPS reported revenue of $84.63 billion.
- The revenue maintained an upward trajectory, reaching a peak of $101.08 billion in September 2022.
- However, there was a slight dip in December 2022, with the revenue falling to $100.34 billion.
- This marked the start of a downturn, with the first quarter of 2023 recording revenue of $98.89 billion.
- The decline continued more sharply over the next three quarters, falling to $96.17 billion (June 2023) and further to $93.07 billion by the end of September 2023.
It's important to highlight that between December 2020 and December 2022, UPS experienced growth in its revenue, increasing by about $15.71 billion, representing a growth rate of around 18.57% over the two years.
In contrast, the trend reversed somewhat from the end of 2022, with the company facing a downward pattern into 2023. While the overall trend had been positive for UPS during the assessed period, the recent data shows signs of a downturn. This could have implications for the company's performance in future quarters and deserves closer monitoring.
The series shows the trend and fluctuations in the gross margin of UPS from December 31, 2020, to September 30, 2023.
- December 31, 2020: The gross margin was at 94.2%.
- March 31, 2021: It then slightly increased to 94.4%, marking a subtle upward trend in the first quarter of 2021.
- June 30, 2021: The second quarter saw a slight drop to 94%.
Following this, there was a consistent downward trend in the gross margin:
- September 30, 2021: Down to 93.8%.
- December 31, 2021: Further down to 93.5%.
- March 31, 2022: Margins fell to 93.2%.
Mid-2022 saw steeper declines:
- June 30, 2022: Down to 92.5%.
- September 30, 2022: Decreased to 92%.
- December 31, 2022: The year ended with a further decrease in gross margin to 91.5%.
The start of 2023 marked a slow but steady increase in gross margin:
- March 31, 2023: It increased slightly to 91.2%.
- June 30, 2023: Increased further to 91.6%.
- September 30, 2023: As per the latest data, UPS' gross margin remained constant at 91.6%.
Taking into account the growth rate measured from the first value to the last, UPS’ gross margin has seen a decrease of approximately 2.6% over this period. The more recent data indicates a subtle recovery after consistent declines in 2021 and 2022.
However, the gross margin as of September 30, 2023, is still lower than that of the starting value as of December 31, 2020. It suggests an overall downward trend in the company's gross margins over time amid fluctuations.
The Analyst Price Target (APT) for UPS observed various fluctuations across the observed period from November 12, 2021, to November 2, 2023. Here's a brief analysis of the significant changes:
- Initially, the APT remained unchanged at $230 from November 12, 2021, to November 26, 2021.
- Beginning December 2021 until early February 2022, the APT saw a gradual decrease from $228 to $225.5, with a few periods of stability in between.
- A sharp increase was observed in mid-February 2022, where the APT rose from $227.4 (February 4, 2022) to $247 (February 11, 2022).
- From mid-February until April, the APT witnessed minor fluctuations, ultimately reducing to $242.5 by April 22, 2022.
- An abrupt drop occurred in the first week of May 2022, falling from $243 to $224.5.
- Throughout the summer of 2022, a slow, steady decline was observed, reaching $212 by September that year and eventually dropping to around $200 by November.
- The APT oscillated between $196 and $199 during the start of 2023 until March end.
- In April 2023, an upswing took the APT from $199 (April 1, 2023) to $202 (April 21, 2023).
- After peaking at $201.2 in late April, it fell back to $200 by May 2023 and fluctuated around $200 until mid-June.
- Thereafter, a steady decline was seen until October, when it reached a low of $183 on October 20, 2023.
- As of the latest reported data on November 2, 2023, the APT is $178.25.
Comparatively, there is a negative growth rate of about -22.5% from its initial value ($230) to its final value ($178.25). The series highlights more significant adjustments in the APT in 2022, with some stabilization in 2023, apart from a few peaks and falls.
However, greater emphasis should be placed on recent data and the fact that the latest APT reported in November 2023 ultimately saw a decrease compared to the initial value in November 2021.
United Parcel Service's Share Price: A Rollercoaster Journey from May to November 2023
The data represents the share price of UPS from May to November 2023. Here is a summarized representation of the data:
- In May 2023, the share price had minor fluctuations, ranging slightly from $171.55 to $168.70.
- The price then gradually escalated in June, though with some variation, beginning at $169.51 and peaking at $175.17 by the end of the month.
- In July, the share price saw consistent growth, starting at $180.52 and reaching a peak of $186.85 by the end of the month. This represents the highest value in this dataset for UPS' share price.
- However, the price fell during August, opening at $183.98 and ending significantly lower at $168.10, suggesting a declining trend overall.
- September continued this downward trend, starting at $170.15 and bottoming out at $153.88.
- Though October saw relatively stable prices hovering around the mid-$150s, it experienced a notable drop near the end of the month, with the share price falling to $144.33.
- The share price further slipped to $139.80 on November 1, 2023.
Overall, UPS’ share price exhibited an initial increase from May to July, followed by a consistent decline from August onwards. Despite minor fluctuations, the trend presents as predominantly descending from the peak in July 2023 to November 2023. Here is a chart of UPS' price over the past 180 days.
Assessing UPS' Performance in 2023: Quality, Stability, and Value Analysis
UPS' POWR Ratings Grade has been maintaining a steady grade of C (Neutral) throughout. This measures the overall strength of the company relative to its category of Air Freight & Shipping Services, which contains 14 stocks in total. Some important points to note:
- From May 6, 2023, to June 24, 2023, UPS ranked #8 or #9 within its category.
- A slight improvement was seen as the rank rose to #7 for the week of July 8, 2023, and remained consistent until the week of August 5, 2023.
- During the weeks of September 2, 2023, through September 23, 2023, and again on September 30, 2023, the rank dropped to #8 and #9.
- However, starting the week of October 7, 2023, UPS saw an improvement in its rank to #7 and maintained this rank as of November 2, 2023.
Based on the POWR Ratings provided, the three most noteworthy dimensions for UPS are Quality, Stability, and Value.
Quality: UPS’ Quality dimension scored the highest consistently across different months in 2023. Its rating remained steady at 94 in May, July, September, and October. It peaked at 95 for June and August while slightly declining to 92 in November.
Stability: The Stability dimension is another key area where UPS performed considerably well in 2023. The ratings hovered in the upper 70s for the most months, with the highest score recorded as 78 in May and August. However, there seems to be a decreasing trend towards the end of the year, with the stability score dropping to 75 in October and further reducing to 68 in November.
Value: The Value dimension displays incremental and decremental trends over the observed months. Starting from a score of 39 in May, the rating saw a gradual decrease down to 35 in August. However, from September, the Value rating surged back, reaching a high of 43 in October before slightly lowering to 41 in November.
How does United Parcel Service, Inc. (UPS) Stack Up Against its Peers?
Other stocks in the Air Freight & Shipping Services sector that may be worth considering are FedEx Corporation (FDX), AerCap Holdings N.V. (AER), and Radiant Logistics, Inc. (RLGT) - they have better POWR Ratings. Click here to explore more Air Freight & Shipping Services sector stocks.
What To Do Next?
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UPS shares were trading at $142.80 per share on Thursday afternoon, up $3.00 (+2.15%). Year-to-date, UPS has declined -15.58%, versus a 13.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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