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| United Parcel Service, Inc. |((UPS -NYSE) | $111.15* |

Note: This report contains substantially new material. Subsequent reports will have changes highlighted

Reason for Report: 1Q18 Earnings Update

Prev. Ed.: Apr 2, 2018, News Update

Brokers’ Recommendations: Positive: 33.3% (5 firms); Neutral: 60% (9); Negative: 6.7% (1) Prev. Ed.: 5; 9; 1

Brokers’ Target Price: $121.77 (↓ 23 cents from the last edition; 13 firms) Brokers’ Avg. Expected Return: 9.6%

* Though dated May 9, share price and brokers’ material are as of May 2

Note: The tables below (Revenues, Margins, and Earnings per Share) contain material from fewer brokers than in the valuation table. The extra figures in the valuation table come from reports that did not have accompanying spreadsheet models.

Note: We did not have access to the report from the broker having ‘Negative’ recommendation on the stock.

Portfolio Manager Executive Summary

United Parcel Service, Inc. (UPS) is the world’s largest express carrier and package delivery company as well as a leading provider of supply chain management services. The company is headquartered in Atlanta, GA, and delivers multiple packages each business day across more than 220 countries and territories.

Of the 15 firms covering the stock, five assigned positive while nine provided neutral ratings. One firm rated the stock negatively. Target prices range from $90.00 to $135.00 with the average being $121.77.

The following is a summarized opinion of the diverse brokerage viewpoints:

Bullish: Buy outlook (5/15 firms): These firms are encouraged by the company’s optimism regarding its earnings growth, which reflects its strength with respect to its market position and its ability to safeguard its shareholder value despite unfavorable market dynamics. The company’s financial strength drives growth through strategic investments, technology-backed operations and enhanced worldwide network. Further, international opportunities remain an attractive growth driver for the company. The firms believe that UPS is also well positioned to benefit from the booming e-commerce market.

The firms favor the UPS Ground segment as it has continually delivered impressive growth. The company is expected to invest further in developing this segment, which in turn, should expand margins and boost earnings. The firms are also impressed by the company’s efforts to improve operational efficiency.

Cautious: Neutral outlook (9/15 firms): The firms are of the view that opportunities in the international market and e-commerce growth trends remain attractive tailwinds for the company. The company’s pricing gains continue to remain strong. However, they believe that all these positives have already been reflected in the current market value of the company, which restricts it upside. These firms are optimistic on the effect of the tax overhaul on UPS. However, the tax overhaul may increase Capex further.

May 9,2018

Long-Term Growth

UPS is the global leader in commercial and residential package delivery. The company continues to invest in technology and network enhancements to drive growth.

The firms believe that the strong growth in e-commerce should aid the company significantly. Its SurePost delivery program apart from its deal with Amazon should stand the company in good stead. The firms expect this profitable shift to online ordering should aid the company immensely.

Most firms are optimistic in efforts to expand the global footprint. Following the disappointing end of the $6.8 billion mega acquisition bid of TNT Express — a Dutch shipping company, subsequently purchased by rival FedEx — UPS seems to bank on smaller buyouts to extend its international presence.

Per the firms, the company’s intention to grow in China is prudent enough, given that the Chinese e-commerce market is highly lucrative, offering a significant commercial potential. The company’s recently approved joint venture with SF Holding is a move into that direction. With this, the company is on track to develop a cobranded, highly-competitive export product for Chinese businesses shipping to the United States. This will fortify UPS to widen its small and medium-size customer base.

UPS' decision to enter into Asia’s 3D printing industry is also a judicious approach. In addition to expanding the portfolio, UPS is improving service levels to provide customers with more timely service. The company has reduced delivery time across the intra-Europe ground network.

In fact, UPS has multiple global modernization projects under development. These endeavors along with other network optimization and data connectivity initiatives emerge as the company’s strategies to add capabilities to its portfolio and improve the operating performance by adopting technology. The company’s decision, announced in February 2018, to widen the reach of its UPS WorldWide Express service is a prudent move. Following the expansion, the service can be availed in 124 countries and territories across the globe. The measure aims to facilitate the delivery of urgent shipments in markets offering high-growth potential. Moreover, the improved scenario at the Supply Chain & Freight markets should drive long-term growth.

The firms are also impressed by the company’s efforts to reward shareholders through dividends/buybacks. Most firms believe that it will continue to increase dividends driven by its solid financial health and the improving domestic economy. Most firms believe that the tax overhaul will impact the company positively and could lead to an increase dividend and more buyback activities.

May 9, 2018

Overview

UPS is the world's largest package delivery company. The company, based in Atlanta, GA, provides specialized transportation and logistics services in the United States and internationally. UPS offers a range of supply chain solutions such as, freight forwarding, customs brokerage, fulfillment, returns, financial transactions, and repairs. The company operates through three segments: U.S. Domestic Package, International Package, and Supply Chain and Freight.

The firms have identified the following merits for investment decisions:

|Key Positive Arguments |Key Negative Arguments |

|Compelling Fundamentals: UPS has a sound record of brand awareness, high-quality |Economic Sensitivity: UPS is dependent on economic growth, global trade, |

|service, sales penetration and technology platforms in the Package market. |interest rates and currency exchange rates for growth. Recessions, trade |

|International Opportunities: With rapid growth in international trade and express |restrictions and geopolitical issues could also impact the results. |

|deliveries, UPS' international business is growing faster than the U.S. business. | |

|The segment thus remains an attractive growth driver for the company. |Government Regulation: UPS operates under the jurisdiction of multiple |

|E-commerce Growth: A booming e-commerce market worldwide is a powerful tailwind for|regulatory bodies – FAA, DOT and Customs for air routes, business |

|the company. |practices, plus and safety and security standards. |

|Tax overhaul: Firms believe that the tax overhaul will impact UPS positively through| |

|increased economic growth. |Unionized Labor Force: The majority of UPS’ employees are union members. |

|Shareholder friendly approach: UPS has a commitment to return capital to |Work stoppages or strike threats would affect UPS’ competitive position. |

|shareholders and is consistently looking to reward its shareholders through | |

|dividends/buybacks. | |

Further information on the company is available at its website: United Parcel Service .com.

Note: UPS’s fiscal year coincides with the calendar year.

Feb 9, 2018

Target Price/Valuation

Provided below is the summary of valuation and ratings:

|Rating Distribution |

|Positive |33.3% |

|Neutral |60% |

|Negative |6.7% |

|Avg. Target Price |$121.77↓ |

|Max. Target Price |$135.00 |

|Min. Target Price |$90.00 |

|Firms with Target Price/Total no. of Firms |13/15 |

Risks to the target price include economic upheaval, volatile international operations, various regulatory matters, pension and medical benefit expense fluctuations, stiff competition, disruption of operations and operating efficiencies due to a highly unionized labor force, acquisition implementation, and integration and fluctuations in foreign currency and fuel prices.

Recent Events

On Apr 26, 2018, United Parcel Service reported first-quarter 2018 earnings of $1.55, beating the Zacks Consensus Estimate of $1.54 per share. The bottom line also increased 17.4% on a year-over-year basis. Results were aided by strong performances from the International and Supply Chain and Freight segments.

Revenues improved 10% to $17,113 million from the year-ago quarter, outpacing the Zacks Consensus Estimate of $16,443.6 million. This upside was driven by strong demand for UPS solutions. In the first quarter, the company’s capital expenditure was $1.5 billion. Also, the company distributed approximately $840 million to shareholders. Cash flow was $2.6 billion in the quarter.

Total Revenues

Per the company press release, total revenues in 1Q18 grew 10% to $17,113 million from the year-ago quarter, outpacing the Zacks Consensus Estimate of $16,443.6 million. This upside was driven by strong demand for UPS solutions.

Provided below is a summary of segments as compiled by Zacks Digest:

|Segment Revenue |3Q17A |4Q17A |2017A |1Q18E |2018E |2019E |

|($ in million) | | | | | | |

|International Package |$3,364.8 |$3,750.9 |$13,338.3 |$3,533.0 |$3,981.7 |$15,539.0 |

|Supply Chain and Freight |$2,977.1 |$3,253.9 |$11,820.9 |$3,353.0 |$13,446.3 |$14,239.3 |

|Total Revenue |$15,990.2 |$18,829.0 |$65,872.0 |$17,113.0 |$71,399.5 |$75,385.3 |

U.S. Domestic Package (59.8% of 1Q18 revenues): Revenues climbed 7.2% year over year to $10,227 million in the reported quarter. Segmental average daily package volumes increased 4.6% backed by a 4.1%, 9.3% and 4.3% rise in Ground products, Next Day Air services and Deferred Air products, respectively. Average revenue per piece for the segment was up 2.6%.

International Package (20.6%): Revenues improved 15% to $3,533 million. Daily export volumes rose 12% in 1Q18 on the back of premium products outpacing non-premium products.

Supply Chain and Freight (19.6%): Revenues expanded 16% to $3,353 million. Segmental results were boosted by impressive revenue-quality initiatives, growth strategies as well as structural cost reductions.

Outlook

Management is optimistic about growth in all the businesses and expects to see higher demand for UPS services along with increased volume growth. In the U.S. domestic package unit, the company anticipates strong growth in revenues in 2018. The company expects revenue growth between 5% and 6% in the United States. In the international segment, revenue growth in 2018 is projected in the band of 7% to 9%. In the supply chain and freight unit, the company expects revenue growth in 2018 between 6% and 8%.

However, the gains might be offset by an unimpressive yield, expected to be down as a result of lower fuel surcharges. Additionally, cost pressures on temporary peak hiring and purchase transportation in some markets in the United States pose a threat. Moreover, currency fluctuations remain a headwind.

However, the firms believe that UPS has a high growth potential in the e-commerce space. They believe that the company’s strategic investments, technology-backed operations and enhanced worldwide network will strengthen its market position and safeguard shareholder value against unfavorable market dynamics. Moreover, the improving economic scenario is also benefiting the company.

Margins

Details of the segmental operating profit are as follows:

U.S. Domestic Package: Segmental operating profit (adjusted) declined 20.4% to $756 million due to rough weather conditions among other factors. Operating margin in 1Q18 was 7.4%.

International Package: Segmental operating profit increased 15% to $594 million as well.The company expects the segment’s operating profit for 2018 between 10% and 12%. Operating margin in 1Q18 was 16.8%.

Supply Chain and Freight: Operating profits in the segment increased 14% to $170 million in the first quarter. The company expects the segment’s operating profit for 2018 between 10% and 12%. Operating margin in 1Q18 was 5.1%.

Provided below is a summary of margins as compiled by Zacks Digest:

|Margins |3Q17A |4Q17A |2017A |1Q18E |2018E |2019E |

|Digest High |$1.45 |$1.67 |$6.02 |$1.55 |$7.30 |$7.90 |

|Digest Low |$1.44 |$1.66 |$6.00 |$1.55 |$7.20 |$7.79 |

|Y/Y Growth |0.7% |2.3% |4.4% |17.5% |20.5% |8.0% |

|Q/Q Growth |-8.5% |15.3% | |-7.1% | | |

Note: Blank cells indicate the analysts did not provide any numbers

Outlook

The company expects adjusted earnings per share for the current year in the range of $7.03-$7.37, unchanged from its previous expectation. The guidance includes approximately $200 million of additional pre-tax pension expense owing to lower discount rates. Tax rate in 1Q18 came in above 19%. The company expects the same between 23% and 24% in the remaining three quarters. Cah flow for the current year is anticipated between $4.5 billion and $5 billion.

However, stiff competition, significant market risks and labor unionization could be a drag on the company’s earnings growth expectations in the near term. Foreign currency related headwinds also might hurt 2018 results.  2, 2017

|Research Analyst |Maharathi Basu |

|Content Ed. |Maharathi Basu |

|Last updated by |Maharathi Basu |

|Reason for Report |Earnings |

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May 9, 2018

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