UPS share price down, announces cost-cutting plan in order to reach ambitious targets

United Parcel Service Inc. unveiled a five-year plan, including aggressive cost-cutting measures, as the company tries to grasp aspiring growth goals.

UPS said the boom in online retailing is an opportunity for the company and not a threat. In line with this view, the company projected full-year earnings per share to range between $4.90 and $5.00.

In 2015 UPS expects to reach $5.45 to $5.70 earnings per share. It also projected earnings-per-share growth of more than 50% over the 2015-2019 period to $7.62 and $9.12.

Over the past two years earnings per share increased less than 5% as home deliveries, which have lower profit margin than commercial shipments, dented its profitability in the U.S.

However, UPS expects annual revenue growth of 5% to 7% over the five years starting 2015, as the global economy grows and e-commerce is on the rise with no signs of slowing down.

The company introduced a plan to invest more than $2 billion into spreading its operations over Asia, Europe and the Americas. UPS also said it will put efforts into modernizing some U.S. operations, like automatically sort packages.

“Over the next few years, you’ll see a company that’s more adept, more agile and can seize opportunities quicker. We will continue to deliver top- and bottom-line growth,” CEO David Abney said. He explained that deliveries to homes will reach 75% of UPSs volume by 2019.

“This past quarter, the great majority of our growth was driven by e-commerce, and our margins grew by 30 basis points” he added.

In order to cut costs, UPS started testing a program to combine shipments from different retailers and deliver them all at once. The company will offer merchants a discount should they agree to delay the shipments with a day or two.

“The vast majority of our shipments aren’t all that urgent” CFO Kurt Kuehn said, but warned that the system will work better on products different from eagerly awaited high-tech gadgets.

To decrease costs further, UPS is working on its On-Road Integrated Optimization and Navigation software system, or ORION. The technology is designed to help drivers find the shortest way from one delivery destination to another and it is used by around 22 000 vehicle operators. The software is estimated to save 7 to 9 miles per driver per day. Upon full implementation in 2017, ORION is expected to generate $300 million to $400 million in cost savings.

“The company is adapting well to the rapidly changing market conditions,” said Mr. Kuehn. “We are developing the right solutions today, to ensure customers choose UPS for their supply chain needs tomorrow.”

United Parcel Service Inc lost 0.76% on Thursday and closed at $107.79 in New York, marking a one-year increase of 6.68%. The company is valued at $97.57 billion. According to the Financial Times, the 22 analysts offering 12 month-price targets for United Parcel Service Inc have a median target of $112.50, with a high estimate of $126.00 and a low estimate of $99.00. The median estimate represents a 4.37% increase from the last price of $107.79.