Where UPS' 2013 Cash Went

Tyler Durden's picture


Moments ago UPS did what almost every other company so far in this, and prior, earnings seasons has done: posted unimpressive earnings (EPS of $1.25 meeting expectations), while missing revenues, with Q4 sales of $15.0 billion below expectations of $15.2 billion. We already know the explanation - as the company preannounced, the "only reason" its business slowed down in Q4 was due to a... surge in business surrounding the holidays for which the management was unprepared, because apparently the UPS C-suite was unaware how to read a calendar. And, most expectedly, to offset all the bad news, UPS announced it would continue doing what all companies facing a slowing economy do: not invest in Capex while buying back another $2.7 billion in shares in 2014.

But the point of this post is not to spread UPS earnings, but to highlight the biggest cyclical failure of the Bernanke era - one we first highlighted two years ago - when we observed that in the new normal, companies invest not in CapEx but in dividends and buybacks, seeking to appease short-term activist investors while leaving the long-term future of the company flailing in the wind. So here it is, from the earnings release:

For the year ended Dec. 31, UPS generated $5.3 billion in free cash flow, producing a net income-to-cash conversion ratio of more than 120%. The company paid dividends of $2.3 billion, an increase of nearly 9% per share over the prior year, and repurchased more than 43 million shares for approximately $3.8 billion.

This free cash flow is the result of $7.3 billion in cash from operations, from which $2.1 billion in CapEx was reduced.

In short here is how UPS allocated all of its created capital in 2013:

  • $3.8 billion in Buybacks
  • $2.3 billion in dividends
  • $2.1 billion in CapEx

Here is the advice for the central planners: until the bullets above read CapEx 100% of capital allocation with buybacks and dividends get 0%, the economy will not improve, period.

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Thu, 01/30/2014 - 09:08 | 4383584 MillionDollarBonus_
MillionDollarBonus_'s picture

There is actually a pretty strong case for boosting your stock price through buy backs and dividends. Whe, investors see that astock is doing well, they instinctively pile in, giving UPS that bit of extra cash it needs to make new investments. When UPS's stock price increases they can sell back the equity they bought and raise even more cash. It's an extremely savvy way to raise money in my opinion and I hope that the executives are rewarded handsomely if this works out.

Thu, 01/30/2014 - 09:12 | 4383593 TeamDepends
TeamDepends's picture

Perhaps they could use some of the cash they raise to purchase non-Chinese calendars.

Thu, 01/30/2014 - 09:15 | 4383603 Diplodicus Rex
Diplodicus Rex's picture

MDB, you manage to cheer me up every time.......

Thu, 01/30/2014 - 09:29 | 4383657 tedstr
tedstr's picture

Speculating  on your company's stock price is not what investors pay for.  Though it is what the CEO is paid for.

Thu, 01/30/2014 - 09:34 | 4383677 MillionDollarBonus_
MillionDollarBonus_'s picture

Why? If it's done in moderation and for the right reasons, it can be a truly powerful tool for any company.

Thu, 01/30/2014 - 09:41 | 4383694 mayhem_korner
mayhem_korner's picture



Running into icebergs "in moderation" can be good, too.  There is good evidence of it at the floor of the North Atlantic.

Thu, 01/30/2014 - 09:38 | 4383688 Headbanger
Headbanger's picture

Man, what shit are you smoking now?

Or are you just a complete space shot naturally?

Thu, 01/30/2014 - 09:45 | 4383713 Toolshed
Toolshed's picture

I guess putting your cart in front of your horse could work for a short period of time, but pretty quickly, your horse will realize that he is smarter than you and proceed to kick your ass and make you eat shit.

Thu, 01/30/2014 - 09:03 | 4383566 RSloane
RSloane's picture

Next up, I'm going to buy my property from me to be truly solvent. Brilliant!

Thu, 01/30/2014 - 09:03 | 4383567 MFLTucson
MFLTucson's picture

Why do they need earnings when their stock will go higher on money printing and derivative fraud?

Thu, 01/30/2014 - 09:03 | 4383571 Nutflush60
Nutflush60's picture

Come on. You do not need 100% reinvested to get an improved economy.


Thu, 01/30/2014 - 09:05 | 4383574 Sudden Debt
Sudden Debt's picture

buybacks... why not pay their staff a normal salary?

Thu, 01/30/2014 - 09:06 | 4383581 101 years and c...
101 years and counting's picture

that would reduce earnings, and (here's the horror of that) exec salaries.  cant happen.  duh.

Thu, 01/30/2014 - 09:04 | 4383576 mayhem_korner
mayhem_korner's picture



Looks like their earnings have decided to "go brown".

Thu, 01/30/2014 - 09:15 | 4383596 Disenchanted
Disenchanted's picture

UPS drivers have no time for bathroom breaks(time studies), hence the brown uniforms.

Thu, 01/30/2014 - 09:29 | 4383654 KickIce
KickIce's picture

Might do that anyway after they see the Dry Baltic Index.

Thu, 01/30/2014 - 09:05 | 4383578 youngman
youngman's picture

Buy backs are the new thing.....I love the companies that take out a loan to do it....lol...at some point ...very few people will own stock...less and less shares to buy....will they all become Berkshire stock values...

Thu, 01/30/2014 - 09:07 | 4383579 the not so migh...
the not so mighty maximiza's picture

good article

Thu, 01/30/2014 - 09:11 | 4383590 ms8172
ms8172's picture

Why don't companies share their extra cash with their people??????

Thu, 01/30/2014 - 09:25 | 4383630 Disenchanted
Disenchanted's picture

They do, usually it's the CEO that gets the biggest share.

Thu, 01/30/2014 - 09:36 | 4383680 mayhem_korner
mayhem_korner's picture



Which "people"?  They are sharing the extra cash with their owners through buybacks and dividends.  Are you thinking the employees via wage increases?  Or perhaps customers via lower prices?  Or creditors through debt reduction? 

Thu, 01/30/2014 - 09:44 | 4383711 spanish inquisition
spanish inquisition's picture

If you have too much money lying around the Tier 3 union kids, will want to be paid like the Tier 1 old guys.

Fri, 01/31/2014 - 19:31 | 4389874 Hmmmmm
Hmmmmm's picture

The story that isn't often told, or is that isn't told often enough.

Thu, 01/30/2014 - 09:14 | 4383597 buzzsaw99
buzzsaw99's picture


Thu, 01/30/2014 - 09:19 | 4383609 bugs_
bugs_'s picture

Help these executive options packages or....WE'RE DOOMED!

Thu, 01/30/2014 - 09:26 | 4383635 Handful of Dust
Handful of Dust's picture

I've decided to 'buy back' all my old furniture. Buying back your own stuff is very Trendy...very Beeberish.

Thu, 01/30/2014 - 09:33 | 4383670 Last of the Mid...
Last of the Middle Class's picture

Nothing like playing the stock market with cash on hand instead of TCB. Get as much of the free money the FED is printing while you can. Uninted goverment intervention effects. Gotta Love 'em.

Thu, 01/30/2014 - 09:46 | 4383716 Took Red Pill
Took Red Pill's picture

It used to be companies that did well shared that with their employees. The employees then spend their extra cash and the whole economy does better. That doesn't happen anymore. Now companies screw their employees as much as they can, give the money to CEOs and shareholders, which is why the growing income gap between the rich & poor.

Thu, 01/30/2014 - 11:31 | 4384117 Greenskeeper_Carl
Greenskeeper_Carl's picture

UPS did very well to its employees when it went public. only employees owned stock before it went public, and those that were smart enough to buy it made out very well. My dad worked in a wearhouse, by no means an executive, and made a ton of money. And i don't mind their dividends eiher. Every quarter i get money from UPS that i use to buy silver, i like the arrangment. Probably should have sold some when it hit 105 a share though...

Thu, 01/30/2014 - 10:14 | 4383789 SillySalesmanQu...
SillySalesmanQuestion's picture

It has been going on for a long time. Michael Milken, Henry Kravis and Ivan Boesky showed everyone how to leverage a company up with massive debt, pay themselves with the profits of said debt,(LBO, stock repurchase, or selling assets)  line their pockets with billions and leave said company in a very weakened state.

"Why wreck this company?" "Because its wreckable!"

Thu, 01/30/2014 - 11:22 | 4384086 zyby
zyby's picture

re: "Here is the advice for the central planners: until the bullets above read CapEx 100% of capital allocation with buybacks and dividends get 0%, the economy will not improve, period."

CapEx will NEVER = 100% of capital allocation. This is nonsense.

The real economy will improve when debt loads get back to low-earth orbit, and not before. That'll be a long time from now.


Thu, 01/30/2014 - 11:47 | 4384167 pilager
pilager's picture

Capex the Greeks and give a Greek to every employee. Two for employee of the month.

Thu, 01/30/2014 - 11:51 | 4384168 zjxn06
zjxn06's picture

UPS delivers my bulk ammo to my doorstep on time.  I get to track shipment every step of the way on "My UPS". 

Corporate shennanigans aside, UPS gets an A+ from me for services rendered.

FedEX not so much. Last year had some rounds of hard to find .308 coming my way and FEDEX would not deliver them to me. 

After tracking the "Failed to Deliver" package, had to drive 100 miles to the "big city" FEDEX central delivery center to go pick the ammo up. 

Big Hassle, after many phone calls and waiting, get to FEDEX center and sign on pickup office pick up window read "NO GUNS OR KNIVES ALLOWED ON THESE PREMISES".

Went in and picked up my ammo with a legal and concealed side arm strapped inside my belt. 

Boycotted FEDEX after that experience.


Thu, 01/30/2014 - 12:20 | 4384255 Rising Sun
Rising Sun's picture

Hey Yellen - did you read this??


Now shove it up your wretched cunt!!!!

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