MaxDividends business overview: "Big Brown"
MaxDividends business overview: "Big Brown"
Undervalued High Yield Dividend Stocks. Today: Deep dive into the undisputed heavyweight champ in the package delivery world 🚚
Intro
How It All Started: “We Borrowed $100 and a Bike”
Back in 1907, two young hustlers, 18-year-old Claude Ryan and 19-year-old Jim Casey, decided to shake things up and start their own courier gig. All they had was a bike, $100 borrowed from a friend, and a vision for what would become a global delivery empire.
“Even though we started in a half-basement and basically ran our business from the street, we knew we didn’t want to be seen as some ‘street operation.’ From day one, we made sure our vehicles looked sharp. We wanted to impress anyone who came across our service.”
📊 Deep Dive into United Parcel Service's business
Key Dates
1907: Jim Casey kicks off a six-bicycle messenger service, naming it the American Messenger Company in Seattle, Washington.
1915: The company starts painting its delivery vehicles brown.
1919: After snapping up a delivery firm in Oakland, California, they rebrand as United Parcel Service (UPS).
1953: UPS begins expanding its common-carrier parcel service, offering to pick up and deliver parcels for anyone, anywhere. This year also marks the launch of UPS Air, a two-day air express service connecting major cities on both coasts.
1975: UPS becomes the first package delivery firm to hit every address in the continental U.S.; they also make their first international move by launching in Ontario, Canada, and move their HQ to Connecticut.
1976: UPS breaks into Europe with a delivery service in West Germany.
1999: UPS goes public, raising a whopping $5.47 billion through its IPO; the official name changes from United Parcel Service of America Inc. to United Parcel Service, Inc.
Company History
Known in the biz as "Big Brown," United Parcel Service, Inc. (UPS) is the undisputed heavyweight champ in the package delivery world. Headquartered in Atlanta, UPS delivers roughly 3.4 billion packages across more than 200 countries and territories. With a fleet boasting over 100,000 vehicles and nearly 600 aircraft, UPS operates the ninth largest airline in North America.
While UPS has been expanding its global footprint, it’s the U.S. operations that really flex its muscles. The company’s door-to-door delivery system covers every residential and business address in the country, and UPS estimates that it handles goods worth more than 6% of the U.S. GDP. A whopping 83% of UPS’s revenue comes from the U.S., where it holds about 60% of the ground shipping market and around 35% of the air shipping market.
United Parcel Service, Inc. (UPS) Business Model
Key Partnerships
United Parcel Service, Inc. (UPS) has strategically crafted key partnerships to enhance its logistical capabilities, expand its global reach, and fortify its service offerings. These collaborations are crucial in maintaining the efficiency and reliability for which UPS is known worldwide.
· Collaboration with Airlines for Global Air Network
UPS maintains robust partnerships with numerous airlines across the globe to sustain its extensive air network. This network is vital for maintaining timely international parcel service. By leveraging relationships with commercial and cargo airlines, UPS ensures that it can route shipments to nearly any destination worldwide swiftly and efficiently.
· Alliances with Local and Regional Delivery Companies
To enhance its delivery capabilities and local market penetration, UPS collaborates with various local and regional delivery companies. This strategy allows UPS to offer more comprehensive service options and faster delivery times, particularly in remote or less accessible regions.
· Agreements with Retailers and E-commerce Platforms
UPS forms agreements with major retailers and e-commerce platforms to handle their logistics and delivery needs, representing a significant part of the company's revenue stream. Through these agreements, UPS ensures efficient inventory management, warehousing, and distribution services, helping businesses optimize their supply chains and improve customer satisfaction.
· Partnerships with Technology Providers
Given the importance of technology in logistics, UPS partners with leading technology providers to develop solutions that enhance operational efficiency and customer service. These partnerships focus on areas such as advanced tracking systems, AI-driven logistics management, and automated sorting systems, and they play a critical role in maintaining UPS’s reputation as a reliable and innovative service provider.
Together, these partnerships not only support UPS's operational infrastructure but also contribute to its strategic objectives of enhancing global reach, operational efficiency, and customer satisfaction. Each partnership is carefully aligned with UPS’s overarching goals and adheres to its standards for service quality and reliability.
Key Activities
The core activities of United Parcel Service, Inc. (UPS) center on its capabilities to efficiently manage and execute parcel delivery and logistics on a global scale. These key activities are essential in driving the company’s business model, focusing on high levels of service and reliability, and are detailed as follows:
· Parcel delivery and logistics management:
UPS manages a complex logistics system that involves the timely and accurate delivery of packages to a diverse set of customers worldwide. This service encompasses both domestic and international shipping, leveraging a vast network of vehicles, aircraft, and facilities.
· Route optimization and fleet management:
UPS employs advanced technology and software for route optimization that ensures the shortest and fastest paths for delivery vehicles. This not only improves delivery efficiency but also reduces fuel consumption and operational costs. The management of the fleet is tailored to maximize longevity and reliability of service, involving regular maintenance and upgrades to both vehicles and logistic infrastructures.
· Package handling and sorting operations:
At the heart of UPS’s capability to deliver parcels efficiently are its highly automated and sophisticated sorting facilities. These facilities use cutting-edge technology to handle and sort millions of packages daily. Automation within these operations allows for fast processing speeds and minimizes the risk of human error, thus enhancing overall operational efficiency and throughput.
· Customer service and support:
UPS places a strong emphasis on customer service as a pivotal part of its business operation. Service teams are trained to handle queries and concerns with speed and accuracy, whether they relate to package tracking, delivery issues, or account management.
These key activities represent a balanced approach to the logistical complexities of modern parcel delivery and are fundamental to the continued success and competitive advantage of UPS in the logistics sector.
Key Resources
The success of UPS's comprehensive logistics and package delivery services is heavily reliant on its key resources. These include a diverse and technologically advanced global delivery fleet, sophisticated logistic capabilities, an expansive distribution network, and a highly skilled workforce. Each of these resources plays a critical role in maintaining the efficiency and reliability for which UPS is known worldwide.
· Global Delivery Fleet: UPS maintains one of the largest and most diverse delivery fleets in the logistics industry, encompassing a range of vehicles designed to meet the vast array of delivery needs across different terrains and distances. This fleet includes approximately 125,000 package cars, vans, tractors, and motorcycles. In the air, UPS operates over 500 aircraft, which makes UPS Airlines one of the largest airline fleets in the world.
· Advanced Logistics and Tracking Systems: UPS leverages cutting-edge technology to streamline operations and enhance delivery efficiency. Its logistics infrastructure includes an advanced global tracking system that allows both the company and its customers to monitor the precise location of their packages in real-time—an invaluable tool in logistics management.
· Extensive Distribution Network: The breadth and depth of the UPS distribution network are unparalleled. It includes a large number of hubs, sorting facilities, and access points across the globe. This strategically placed infrastructure allows UPS to efficiently manage the flow of goods in over 220 countries and territories, ensuring timely delivery and service excellence.
· Skilled Workforce: UPS invests heavily in its workforce, recognizing that human capital is a critical asset in the service industry. UPS employs over 540,000 individuals globally, each trained to handle the complexities and demands of modern logistics. This includes pilots, drivers, package handlers, operations managers, and customer service representatives.
The integration and effective management of these key resources allow UPS to maintain its position as a leader in the global logistics and package delivery sectors, serving millions of customers with reliability and professionalism.
Value Propositions
United Parcel Service, Inc. (UPS) distinguishes itself in the logistics and package delivery sectors through a robust set of value propositions that cater to a diverse client base ranging from individual consumers to large corporations. These value propositions focus on reliability, geographic reach, delivery customization, and customer-centric features.
· Reliable and Timely Package Delivery: UPS emphasizes its capability to deliver packages reliably and within the expected delivery timeframe. This reliability is underpinned by an expansive logistical network and advanced technology systems which ensure operational efficiencies and accuracy in package sorting, routing, and delivery.
· Worldwide Reach Including Remote Areas: UPS offers extensive coverage, reaching major global markets as well as remote areas, which is crucial for businesses and individuals who require a dependable service that connects them with lesser-accessible regions.
· Variety of Delivery Options: To cater to varying customer needs, UPS provides several delivery solutions including:
Same Day Delivery: For extremely urgent deliveries, UPS offers same-day services ensuring that time-sensitive packages reach their destinations promptly within the same day.
Express Delivery: This service is designed for deliveries that need to be expedited and is faster than standard options, suitable for both domestic and international shipping.
Standard Delivery: A cost-effective choice for less urgent shipments, providing reliable delivery without the premium cost of express options.
· Enhanced Tracking and Customer Service Features: UPS invests in technology to provide enhanced tracking capabilities, giving customers real-time access to the status of their shipments. This feature is supported by a user-friendly interface and a mobile app that allows customers to track, manage, and receive alerts about their packages.
Each of these value propositions is designed to strengthen UPS’s market position and appeal to a broad customer base by delivering high-value, tailored logistics and transportation solutions that meet the evolving needs of a globalized marketplace.
Customer Segments
United Parcel Service, Inc. (UPS) has strategically segmented its customer base to cater to the diverse needs of global shipping and logistics. The primary customer segments are:
· Individual Consumers: This segment includes everyday customers who require reliable and efficient domestic and international shipping services. Through services such as UPS Ground, Air, and International shipping, UPS provides solutions suitable for the occasional shipment of parcels, gifts, and personal effects. The convenience of online tracking and the extensive network of UPS Access Point locations enhance the accessibility and user-friendliness of UPS services for individual consumers.
· Small and Medium-Sized Enterprises (SMEs): SMEs benefit from UPS's comprehensive suite of shipping, logistics, and supply chain management services that help them scale operations, enter new markets, and manage inventory efficiently. The flexibility of UPS’s offering allows SMEs to choose services that best fit their growth stage and operational complexity, such as the UPS Simple Rate for predictable pricing or UPS Connect which offers expert advice and support.
· Large Corporations with Complex Logistics Needs: For these customers, UPS provides advanced logistic solutions that include not only shipping but also detailed supply chain management, dedicated freight forwarding, and customized reverse logistics. Such large corporations benefit from UPS’s vast global infrastructure which can be tailored to specific industry requirements, ensuring compliance, efficiency, and scalability.
· E-commerce Businesses: E-commerce businesses, ranging from startups to established online retailers, leverage UPS e-commerce solutions to meet consumer expectations for swift and accurate order fulfillment. UPS offers a variety of tools designed specifically for online businesses, such as UPS Ready, a program that integrates UPS services into popular e-commerce platforms for seamless logistics operations, and UPS My Choice® for Business, which enhances delivery flexibility and customer satisfaction.
By diversifying its service offerings across these customer segments, UPS ensures that it can meet the needs of a broad spectrum of logistics demands, thereby maintaining its position as a global leader in the logistics and transportation industry.
Cost Structure
The cost structure of United Parcel Service, Inc. (UPS) is largely driven by the complexities and demands of its global logistics and package delivery operations. As a major player in the courier industry, UPS incurs significant expenses in several key areas:
· Operational Costs of Transport and Delivery
UPS operates an extensive logistics network that includes air, ground, and sea transport systems. The operational costs in this sector include fuel, vehicle maintenance, and the operational expenses of their airline, UPS Airlines, which is one of the largest airline fleets dedicated to cargo.
· Salaries and Benefits for Employees
As a service-oriented company, UPS employs a large workforce, including delivery drivers, package handlers, operations engineers, IT staff, and administrative personnel. The costs for salaries and benefits are substantial, reflecting the company's commitment to competitive wages and benefits to attract and retain employees.
· Technology Development and Maintenance
To maintain its status as a leader in the logistics industry, UPS invests significantly in technology development and maintenance. This includes expenditures on information technology systems that manage logistics, tracking, customer service, and operational efficiency.
· Lease and Maintenance of Facilities and Equipment
UPS operates numerous sorting facilities, hubs, retail stores, offices, and vehicular depots globally. The costs associated with leasing or purchasing these spaces, along with their ongoing maintenance, are a critical part of UPS's operational expenditures.
The comprehensive nature of these cost factors illustrates the scale of UPS's operations and underscores the critical importance of efficient cost management practices to maintain profitability and competitive advantage in the logistics sector.
Revenue Streams
United Parcel Service, Inc. (UPS) has crafted a diversified portfolio of revenue streams that leverages its global logistics network, technological expertise, and the brand's strong market presence. Notably, these revenue avenues ensure UPS maintains profitability and growth amidst varying economic climates and evolving market demands. The main revenue streams include:
· Delivery and Shipping Fees: UPS generates a significant portion of its revenue from the fees it charges for parcel delivery and freight shipping. Pricing is strategically structured based on the weight of the package and the speed of delivery required.
· Additional Service Charges: Recognizing the value of customized service offerings, UPS capitalizes on additional charges for supplementary services. These include insurance options, which provide customers with peace of mind for high-value shipments, and delivery confirmation services, which ensure the sender can verify delivery of parcels.
· Contract Logistics Services: UPS extends beyond basic transportation and delivery, providing comprehensive contract logistics services which cater to complex supply chain management demands of large enterprises. This includes warehousing, distribution, order management, and transportation management. The tailored solutions help businesses streamline operations and reduce overhead costs, thereby creating a robust, recurring revenue stream for UPS.
· Franchise Revenues from UPS Stores: A significant part of UPS's growth strategy includes its franchised retail stores, strategically located in various global markets. These stores serve as accessible points for customers to access UPS’s shipping and logistics services. Revenue is generated through franchising fees, royalties, and direct sales of products and services in-store.
Through these primary channels, UPS not only enjoys robust revenue inflows but also benefits from a broadened customer base, ranging from individual shippers to enterprise-level clients. Its adaptable pricing strategies further enable the company to navigate the competitive landscape efficiently, fostering long-term business sustainability and shareholder value.
Fun Facts About United Parcels Service Inc
From Bike Messengers to Global Giants: UPS got its start back in 1907 when a 19-year-old Jim Casey launched a six-bicycle messenger service in Seattle, Washington. Back then, it was called the American Messenger Company. Fast forward to today, and UPS is a delivery powerhouse.
Daily Grind: UPS handles over 24.3 million packages every day, shipping them to 11.1 million recipients in more than 220 countries and territories. They’re pulling in an average revenue of $13.38 per package. That’s some serious volume and cash flow.
Amazon partnership: UPS's largest customer is still Amazon, with the partnership accounting for ~10% of UPS's revenue.
Coast-to-Coast Coverage: In 1975, UPS became the first package delivery service to reach every single address in the continental United States. Talk about blanket coverage!
The Name Game: The name "United Parcel Service" isn’t just for show. "United" reflects their centralized control across all branches, "Parcel" highlights their core business, and "Service" speaks to their dedication to getting stuff where it needs to go.
Flying Under the Radar: For more than 75 years, UPS didn’t even bother with advertising. Their first ad campaign didn’t drop until the 1980s. Before that, they relied on word of mouth and being a recognizable brand through sheer service quality and visibility.
United Parcels Service’s Today Financials
In the second quarter of 2024, UPS reported a slight decline in overall performance compared to the previous year.
The company's consolidated revenue decreased by 1.1%, and operating profit dropped by 30.1%. Key segments such as U.S. Domestic and International operations saw declines in revenue and operating profit.
The U.S. Domestic segment, which is a significant revenue driver, experienced a 1.9% revenue decrease to $14.1 billion, while the International segment saw a 1.0% decrease to $4.37 billion.
However, the Supply Chain Solutions segment showed some resilience, with a 2.6% increase in revenue, driven primarily by growth in logistics, especially within the healthcare sector.
Quick MaxDividends Overview
🟢 Recent data suggests that the company is profitable.
🟢 The dynamic increase in sales emphasizes the successful development of the company in the long term
🟢 Analysis shows that in recent years and to date, operating profit has been growing, there is good dynamics in this matter
🟢 The dynamics of earnings per share are positive, the company shows good pace and stability in terms of profitability
🟢 The company is effectively managed, maintains stable income and demonstrates high sustainability.
Conclusion
🧐 An excellent company for long-term investment with strong positions and ambitious development plans
Details
Sales: The trend is positive, and overall, the company's sales are growing.
Operating Income and Profit: The company is consistently profitable.
Historically, during the last crisis, Covid, the company's revenue decreased and income dropped down heavily but even then, the business remained profitable and quickly recovered and restructured by 2021.
Dividends
United Parcels has been paying dividends continuously 25+ years, increasing payouts almost every year and consistenly doing it last 14 years, never paying less than the previous year's amount. The payout per share has increased 30 times over this period.
Dividend payments are made from net income and are at a relatively safe level, around 70% for the last year and about 55% on average over the past three years.
The company continued to pay dividends without reducing them during the Covid crisis. In a period 2020-2021 dividends of UPS were hiked twice despite the crisis time.
Market Expectations
As UPS moves through 2024, market expectations for company have been tempered by several challenges.
The company has faced difficulty meeting its financial projections, with its second-quarter earnings revealing both revenue and earnings per share falling short of analyst expectations.
The actual adjusted earnings per share (EPS) of $1.79 missed the projected $2.00, while revenue came in at $21.8 billion, below the anticipated $22.17 billion.
Despite these setbacks, UPS continues to project consolidated revenue for the full year at approximately $93.0 billion, with an adjusted operating margin of around 9.4%.
Final Thoughts
UPS faces a challenging market environment, as reflected in its recent financial performance. Despite the shortfall in expected earnings, the company is taking steps to stabilize its financial position, including the reactivation of its share repurchase program, with plans to buy back $1 billion in shares annually.
The company is also focused on returning to operating profit growth in the latter part of the year. As Dividend Investors we should keep an eye on how UPS navigates these headwinds, particularly in the context of its long-term strategy and its ability to meet or exceed its revised financial targets.
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