UPS: A Buffett Bet that Keeps Delivering

11/13/2017 5:00 am EST

Focus: CONSUMER

Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

Berkshire Hathaway (BRK.B) is our largest investment position, which we have held for two decades. Indeed, our individual portfolio holdings have also overlapped Berkshire Hathaway's portfolio over the years, notes Ingrid Hendershot, money manger and editor of Hendershot Investments.

Over that time, Berkshire has acquired several of our other investments in their entirety including FlightSafety International, International Dairy Queen and Precision Castparts. Currently, we share three stocks in common with Berkshire's investment positions — Apple (AAPL), Johnson & Johnson (JNJ) and UPS (UPS).

Of the three, UPS appears the most attractively valued to us. UPS reported solid third quarter results with revenue up 7% to $16 billion on balanced shipment growth and yield expansion with year-to-date revenues also up 7% to $47 billion.

Revenue increased in all segments and major product categories, as expanded customer demand spread across the company's broad product portfolio.  ear-to-date, UPS has generated $4.4 billion in operating cash flow.


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Earlier in the year, UPS stepped up its pace of investment in its network to capture "tremendous e-commerce and international growth opportunities." UPS plans to deliver more than 750 million packages globally in the 25 days between Thanksgiving and New Year's Eve.

The record-breaking seasonal global delivery volume is approximately 5 percent above last year's holiday peak shipping season volume. During the busy holiday shipping season, UPS flexes its global delivery network to process nearly double the regular daily volume of about 19 million packages and documents.

Year-to-date, capital expenditures were $3.7 billion supporting the firm's investment strategies. This year, UPS has paid dividends of nearly $2.1 billion, up 6.4% from last year, providing a current dividend yield of nearly 3%.

So far this year, the company has repurchased 12.3 million of its own shares for approximately $1.4 billion, reaffirming management's commitment to return cash to shareowners.

Given the solid year-to-date results, management increased the low end of its prior guidance by a nickel per share to $5.85 to $6.10. The guidance includes about $400 million, or $0.30 per share of pre-tax currency headwinds.

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