United Parcel Service, Inc. (UPS - Free Report) has chosen Carol Tome to succeed David Abney as the new CEO, effective Jun 1. Tomé has been a member of the UPS board since 2003 and currently serves as the chairperson of the Audit Committee. Previously, she served as the chief financial officer of The Home Depot, a home improvement retailer in the United States, for 18 years.
Abney, the current CEO as well as the chairman will assume the role of executive chairman of the board from Jun 1 onward. He is set to retire from the board on Sep 30. However, he will remain attached to the company until this year-end to help with the transitional process and a successful peak season, which runs from November to early next January. Meanwhile, UPS’ lead independent director William Johnson will become the non-executive chairman come Sep 30.
UPS’ Growth Story Under Abney’s Tenure
Abney has been serving as CEO since 2014 and became chairman in 2016. Under his leadership, UPS was able to increase revenues by 27%, adjusted net income by approximately 50% and earnings per share by nearly 60%. The company implemented a multi-year transformation program through which it was able to significantly reduce U.S. operating leverage in 2019. Additionally, through a large expansion in its global network capacity, the company was able to deliver more than 32 million packages each day during last year’s peak season. UPS has also rewarded shareholders consistently, returning funds worth $29 billion through dividends and share buybacks.
It remains to be seen whether Tome is able to carry forward this rich growth legacy. Per Johnson, Tome “has a proven track record of driving growth at a global organization” and “maximizing shareholder value”. She also has “in-depth knowledge of UPS’ business, strategy and people, and is the right executive to lead the company at this important time in its transformation”.
Critical Timing of the Management Reshuffle
This top brass transition is taking place at a time when UPS is under significant pressure from persistent freight woes. Weak freight demand due to the U.S.-China trade tensions weighed on the company’s volumes massively all of last year. With the signing of the phase one trade deal in January, there was some expectation for a rebound in the freight scenario this year. However, the coronavirus outbreak dashed all hopes, especially given the company’s Chinese exposure. In fact, this month, the company’s management stated that the virus outbreak might hamper shipment of goods, which in turn, is expected to hurt first-quarter 2020 performance.
The stock has declined 22.3% in a year’s time, primarily due to the freight-related headwind.
Zacks Rank & Key Picks
UPS carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are GATX Corporation (GATX - Free Report) , Azul (AZUL - Free Report) and Spirit Airlines, Inc. (SAVE - Free Report) . While GATX and Azul sport a Zacks Rank #1 (Strong Buy), Spirit carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Each of the stocks flaunts an impressive earnings history. GATX’s earnings surpassed estimates in each of the preceding four quarters, the average being 21%. Azul’s bottom line trumped the Zacks Consensus Estimate in three of the trailing four quarters (miss in one), the average beat being 199%. Spirit’s earnings outperformed the Zacks Consensus Estimate in three of the last four quarters (in-line in one) with a beat of 2.8%, on average.
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