(Bloomberg) – United Parcel Service Inc. collapsed in a maximum of seven months after the courier’s profit prospects disappointed investors who hoped the steady boom in e-commerce would bring greater benefits.
The country’s adjusted operating margin will be 10.5% to 12% in 2023, the company said on Wednesday when it outlined a three-year financial plan. Investors expected about 13%, according to studies by JPMorgan Chase & Co. and Credit Suisse Group AG prior to the presentation.
UPS did not provide a revenue forecast for this year or proposed a cost-cutting plan that may also have weighed on the shares.
Shares fell 4.5 percent to $ 200.31
“This is really the internal margin,” Bloomberg Intelligence analyst Lee Klaskov said in an interview. “People were hoping for even greater results.”
CEO Carol Tome, who took office a year ago, has adopted a “better not bigger” strategy to raise margins higher. The Atlanta-based company uses new technology to win over small customers who are willing to pay full delivery costs, while larger customers often order discounts. It also pursues highly cost-effective healthcare supplies.
Tome defended the 2023 target, saying it showed a significant improvement from 7.7% last year.
“If there is a bias in the forecast, it is towards the upper end of the range,” she said. “It’s a message of momentum. We will provide the numbers we have displayed. “
Package growth will be strong, Tome said. E-commerce, which jumped like a Covid-19 pandemic, closed physical stores and is expected to remain strong, will drive the U.S. small package market to grow 12 percent a year for the next three years to $ 195 billion, she said. The volume of parcels worldwide is expected to increase by about 10% per year by 2023.
Meanwhile, the capacity of American parcels will not be in demand with 7 million packages, which will lead to strong prices, Tome said.
UPS is also looking for ways to increase the number of dropped packages on each route and start deliveries on the same day, Tome said.
The company forecasts that the total profit margin will increase to between 12.7% and 13.7% in 2023, supported by international margins of 21.5%. The company’s total margin was 10.3% last year.
UPS plans between $ 13.5 billion and $ 14.5 billion in capital expenditures over the next few years to cope with the global growth of the package fueled by the pandemic. The company also said it would use $ 6.9 billion of its cash to repay the debt by 2023.
Efforts to increase efficiency and introduce more profitable customers will help increase the return on invested capital to between 20% and 29% by 2023 from 22% last year, the company said.
(Updates with the CEO’s comment in the eighth paragraph)
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