Cost reductions will drive the bulk of the earnings gains that United Parcel Service Inc. expects to reap from a new corporate transformation plan, the delivery giant’s finance chief, Richard Peretz, told CFO Journal.
The parcel delivery company on Thursday launched a variety of incremental cost-cutting and operational efficiency programs to offset its investments to transform and modernize its network.
UPS expects the transformation effort to boost adjusted earnings per share by $1.00 to $1.20 by 2022. The company in July confirmed its 2018 full-year adjusted earnings guidance range of $7.03 to $7.37.
The parcel delivery company is centralizing the procurement and sourcing function across its global operations, a project that will deliver roughly one-third of the earnings improvements, Mr. Peretz said. UPS spends between $20 billion and $25 billion a year on commodities such as fuel and tires, and currently some business units are negotiating with vendors on a local level, Mr. Peretz said. “We’re lifting all that and making it one global conversation,” he said.
The voluntary early retirement program UPS launched in April is another effort aimed at cutting costs. The company offered buyouts to a select group of U.S. employees who will depart the UPS on a staggered schedule over the next 12 months.
The program aims to flatten the company’s management structure while also accelerating decision-making across the organization as new managers are given greater responsibilities.
UPS recorded a pre-tax transformation charge of $263 million in the second quarter primarily due to the severance expense. The company expects annual savings of about $200 million per year once outgoing executives cycle out in the second half of 2019.
UPS also is deploying software robots to automate certain back-office tasks. The company first tested robotic process automation last year, deploying robots in bank-record reconciliations, Mr. Peretz said.
The company is reorganizing its finance and accounting teams so that employees are grouped by function -- such as banking or revenue -- rather than by country, Mr. Peretz said. The new structure will create economies of scale across functions and make it easier to respond to regulatory changes that affect multiple geographies, he said.