United Parcel Service, Inc. UPS NYSE Hold Airfreight/Logistics

Transcription

1 One Year Price Chart January 30, 2014 United Parcel Service, Inc. UPS NYSE Hold Airfreight/Logistics Tough 4Q13 Leads to Greater Investments to Improve Planning/Efficiency in 2014 Analysis of Sales/Earnings UPS reported 4Q13 EPS of $1.25, in-line with the company's preannouncement a couple weeks ago, which was weaker than the Street anticipated (prior to the preannouncement) due to the stronger-than-expected e-commerce holiday shipping season and lack of capacity to handle the sudden surge in volumes. European volumes (including B2C) were also better than expected in 4Q13, but international airfreight remained weak. With a challenging quarter behind them now, we believe UPS should again benefit from the secular growth in e-commerce and improving global trade and better general economic conditions in We believe the shares are fairly valued at 16.5x our revised 2015 EPS estimate of $5.80, so we maintain our Hold rating. In our view, UPS is simply a cash flow generating stock buyback machine that pays a modest dividend. U.S. Domestic Package saw higher-than-expected hiring/training, overtime, weekend operations, and repositioning costs, along with lower productivity, which increased segment operating expenses by $125mm-$150mm in 4Q13. Furthermore, revenue was reduced by ~$50mm due to service refunds, while yields declined (due to mix change, growth in SurePost, and service refunds). Rollout of Orion is expected to accelerate in 2014, with 45% of driver routes targeted for route optimization by year-end (up from 10% now). International Package reported 8.8% package volume growth and 30bp margin expansion, driven by robust European demand (Europe trans-border daily volume rose 18% during peak), although negative currency comps held back profit growth (otherwise EBIT would ve risen >12% y/y). Supply Chain & Freight reported a y/y decline in revenue directly related to its freight forwarding unit, which was solely driven by the company's airfreight forwarding operation, as volumes continued to be weak and pricing fell. Distribution and LTL both had revenue growth, with margins expanding slightly Guidance: Domestic Package - U.S. average daily volume +3%-4% with revenues up a little higher, and core pricing (not yields) 2%-3% higher, leading to 14% EBIT margin. International Package should see revenue growth lower than the expected 4%-6% volume growth, while EBIT should grow 12%-14% y/y; Supply Chain & Freight revenues +4%-7%, ~8% EBIT margin, and challenging 1H14. Tax rate - 36%. CapEx - $2.5bn. Share repurchase - $2.7bn. The pension expense benefit expected of $180mm should be largely offset by higher healthcare costs, thanks to ObamaCare. We are reducing our 2014 and 2015 EPS estimates from $5.40 and $6.15 to $5.20 and $5.80, respectively, due mainly to lower international growth (which is yield-driven), thinner domestic package margins, and a smaller-than-expected share buyback. Changes Previous Current Rating Hold Target Price NA FY13A EPS (Net) $4.57 FY14E EPS (Net) $5.40 $5.20 FY13A Rev (Net) $55.52B $55.44B FY14E Rev (Net) $58.54B $57.86B Price (01/30/14): $ Week Range: $105 $79 Market Cap.(mm): 89,171.2 Shr.O/S-Diluted (mm): Enterprise Val. (mm): $96,450.9 Avg Daily Vol (3 Mo): 3,388,209 LT Debt/Total Cap.: 65.9% Net Cash/Share: $0.00 Book Value/Share: $6.97 Dividend($ / %) $2.48 / 2.6% S&P Index 1, EPS (Net) 2012A 2013A 2014E Q1 $1.00 $1.04 $1.10 Q Q Q FY Dec $4.53A $4.57A $5.20 P/E 21.1x 21.0x 18.4x Rev (Net) 2012A 2013A 2014E FY Dec $54.13B $55.44B $57.86B EV/Revenue 1.8x 1.7x 1.7x David G. Ross, CFA dross@stifel.com (443) J. Bruce Chan chanb@stifel.com (443) Stifel Equity Trading Desk (800) Stifel does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. All relevant disclosures and certifications appear on pages 7-8 of this report.

2 Comments around the difficult holiday season, where the company had to hire 55% more part-time help than anticipated E-commerce started strong and continued to rise after Cyberweek Delivery volume per day up 14%+ y/y (almost 2x what UPS planned for) Last-minute e-tailer promotions drove big volumes Peak day was six days later than expected Dec 23 rd, with the volume up 16% over the prior year There were over 70 online retailers guaranteeing next-day delivery on purchases made up to 11pm on 12/23 TX/OK networks shut down for up to three days due to December ice storm UPS has been working since with high-impact customers on how collaboration can improve for the next holiday season Management is also looking at how to enhance the throughput of its network through job simplification, better technology, and expanded infrastructure The company's goal is to have 45% of its driver routes using Orion by the end of 2014 (up from 10% now) and expects this to add 200 additional heads to the Orion team (now about 700) Many trailers are now dropped at UPS with limited visibility as to the contents, so the company is looking to work with its customers to learn ahead of time what's in the trailers Company Description United Parcel Service, Inc. is the largest integrated package delivery network in the world. The company delivers approximately 17 million packages per day globally and is the largest player in the U.S. small package market, the largest package market in the world. The company is endeavoring to leverage its strong positioning (brand awareness, reputation for providing high-quality service, sales penetration and technology platforms) in the package market to provide its customers with competitive advantage through creative yet practical logistics solutions on a global basis. Its Supply Chain & Freight segment offers customers freight forwarding, contract logistics, customs brokerage, LTL and other services. Page 2

3 Equity Comps - Transportation Comparative Valuation Matrix (figures in $US millions, except per share amounts) Closing Equity value as a multiple of Enterprise value as a multiple of Price Diluted Market Total Cash & Earnings per Share Book TTM 2014E TTM TTM TTM TTM TTM TTM PEG Div. 2014E Company name (Ticker) Rating 1/30/2014 S/O cap. Debt equiv. TEV (a) 2012A (b) 2013E (b) 2014E (b) value Revenue EBITDA EBITDA EBITDAR (c) EBIT ROA ROE ROIC ratio (d) Yield FCF Yld Global Integrators Deutsche Post DHL (DPW-DE) Hold , , , , , x 17.9x 16.8x 3.4x 0.6x 8.1x 8.4x 7.4x 12.5x 5.7% 18.4% 14.7% % 6.1% FedEx Corp. (FDX) Hold , , , , x 20.4x 16.5x 2.4x 0.9x 5.9x 7.1x 6.9x 12.3x 5.1% 9.9% 8.8% % 3.8% TNT Express NV (TNTE-NL) NC , ,323.3 NE NE NE 1.5x 0.4x NE 5.2x 4.8x NM -4.0% -6.7% -5.7% NM 0.0% NM United Parcel Service (UPS) Hold , , , , x 21.0x 18.4x 13.7x 1.7x 9.9x 10.8x 10.9x 13.6x 11.6% 77.3% 25.0% % 5.8% Min 4, , x 17.9x 16.5x 1.5x 0.4x 5.9x 5.2x 4.8x 12.3x -4.0% -6.7% -5.7% % 3.8% Mean 44, , , , x 19.8x 17.2x 5.3x 0.9x 8.0x 7.9x 7.5x 12.8x 4.6% 24.7% 10.7% % 5.2% Median 42, , , , x 20.4x 16.8x 2.9x 0.8x 8.1x 7.7x 7.1x 12.5x 5.4% 14.2% 11.7% % 5.8% Max 89, , , , x 21.0x 18.4x 13.7x 1.7x 9.9x 10.8x 10.9x 13.6x 11.6% 77.3% 25.0% % 6.1% Stifel Transportation Average 9, , , x 21.4x 18.6x 3.6x 2.2x 9.2x 10.0x 8.7x 14.7x 5.4% 13.9% 10.0% % 3.9% (a) Total Enterprise Value = Market Capitalization of Equity + Total Debt - Cash + Market Value of Minority Interest (b) Stifel estimates for those rated and First Call mean estimates for unrated securities (c) Enterprise value adjusted to include the capitalization of off balance sheet operating leases with lease expense (or rent expense) being added back to EBITDA for the valuation multiple calculation (d) 2014E P/E divided by First Call mean or Stifel estimated long-term growth rate Excludes non-recurring items Calculations may vary due to rounding Source: Company data, First Call, and Stifel estimates Page 3

4 David Ross, CFA / dross@stifel.com J. Bruce Chan / chanj@stifel.com United Parcel Service Income Statement (figures in $ millions, except per share amounts) A 2000A 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011A 1QA 2QA 3QA 4QA 2012A 1QA 2QA 3QA 4QA 2013A 1QE 2QE 3QE 4QE 2014E 2015E REVENUE U.S. Domestic Package: Next Day Air 5,240 5,664 5,479 5,393 5,621 6,084 6,381 6,778 6,738 6,559 5,456 5,835 6,229 1,557 1,609 1,577 1,669 6,412 1,566 1,593 1,595 1,689 6,443 1,582 1,609 1,611 1,706 6,507 6,598 % change y/y 11.7% 8.1% -3.3% -1.6% 4.2% 8.2% 4.9% 6.2% -0.6% -2.7% -16.8% 6.9% 6.8% 4.1% 3.0% -0.7% 5.4% 2.9% 0.6% -1.0% 1.1% 1.2% 0.5% 1.0% 1.0% 1.0% 1.0% 1.0% 1.4% Deferred 2,694 2,910 2,928 2,902 3,015 3,193 3,258 3,424 3,359 3,325 2,859 2,975 3, , ,037 3, ,073 3,557 3,678 % change y/y 9.3% 8.0% 0.6% -0.9% 3.9% 5.9% 2.0% 5.1% -1.9% -1.0% -14.0% 4.1% 10.9% 8.9% 5.2% 2.1% -2.9% 2.8% -1.0% -0.7% 1.8% 4.5% 1.3% 3.5% 3.5% 3.5% 3.5% 3.5% 3.4% Ground 14,379 15,428 15,984 15,985 16,726 17,683 18,971 20,254 20,888 21,394 19,843 20,932 22,189 5,627 5,645 5,508 6,272 23,052 5,893 5,850 5,869 6,582 24,194 6,189 6,146 6,168 6,919 25,422 26,419 % change y/y 6.5% 7.3% 3.6% 0.0% 4.6% 5.7% 7.3% 6.8% 3.1% 2.4% -7.2% 5.5% 6.0% 6.3% 4.3% 1.6% 3.4% 3.9% 4.7% 3.6% 6.6% 4.9% 5.0% 5.0% 5.1% 5.1% 5.1% 5.1% 3.9% Total U.S. Domestic Package 22,313 24,002 24,391 24,280 25,362 26,960 28,610 30,456 30,985 31,278 28,158 29,742 31,717 8,004 8,058 7,861 8,933 32,856 8,271 8,241 8,254 9,308 34,074 8,611 8,582 8,597 9,698 35,487 36,695 % change y/y 8.1% 7.6% 1.6% -0.5% 4.5% 6.3% 6.1% 6.5% 1.7% 0.9% -10.0% 5.6% 6.6% 6.1% 4.1% 1.2% 3.0% 3.6% 3.3% 2.3% 5.0% 4.2% 3.7% 4.1% 4.1% 4.2% 4.2% 4.1% 3.4% International Package: Domestic ,134 1,346 1,588 1,950 2,177 2,344 2,111 2,365 2, , , ,786 2,967 % change y/y -3.0% -2.2% 0.3% 4.0% 20.3% 18.7% 18.0% 22.8% 11.6% 7.7% -9.9% 12.0% 11.1% 1.7% -8.5% -9.1% 1.3% -3.7% 0.2% 4.9% 8.8% 7.7% 5.4% 4.5% 4.4% 4.4% 4.4% 4.5% 6.5% Export 2,479 2,818 2,966 3,316 4,049 4,991 5,856 6,554 7,488 8,294 7,176 8,234 9,056 2,195 2,252 2,195 2,391 9,033 2,186 2,264 2,214 2,502 9,166 2,271 2,353 2,301 2,600 9,525 10,142 % change y/y 13.9% 13.7% 5.3% 11.8% 22.1% 23.3% 17.3% 11.9% 14.3% 10.8% -13.5% 14.7% 10.0% 3.0% -2.8% -2.5% 1.4% -0.3% -0.4% 0.5% 0.9% 4.6% 1.5% 3.9% 3.9% 3.9% 3.9% 3.9% 6.5% Cargo % change y/y 22.6% 13.0% 14.3% 13.3% -7.6% 10.8% 12.9% 9.8% 5.3% 6.3% -37.1% 29.6% -19.3% NM -2.6% 1.4% 4.7% 29.9% 15.3% 4.1% 1.4% 6.0% 6.4% 4.0% 4.0% 4.0% 4.0% 4.0% 3.0% Total International Package 3,718 4,078 4,280 4,720 5,609 6,809 7,977 9,089 10,281 11,293 9,699 11,133 12,115 2,966 3,014 2,943 3,201 12,124 2,978 3,062 3,017 3,372 12,429 3,099 3,186 3,139 3,508 12,931 13,747 % change y/y 9.8% 9.7% 5.0% 10.3% 18.8% 21.4% 17.2% 13.9% 13.1% 9.8% -14.1% 14.8% 8.8% 7.2% -4.0% -3.7% 1.5% 0.1% 0.4% 1.6% 2.5% 5.3% 2.5% 4.1% 4.0% 4.0% 4.0% 4.0% 6.3% Supply Chain and Freight Forwarding and Logistics ,479 1,969 2,126 2,379 4,737 5,681 5,911 6,293 5,080 6,022 6,103 1,424 1,485 1,445 1,623 5,977 1,360 1,333 1,358 1,441 5,492 1,333 1,400 1,467 1,571 5,770 6,058 % change y/y 33.4% 38.6% 76.9% 33.1% 8.0% 11.9% 99.1% 19.9% 4.0% 6.5% -19.3% 18.5% 1.3% -0.3% -3.5% -6.9% 2.5% -2.1% -4.5% -10.2% -6.0% -11.2% -8.1% -2.0% 5.0% 8.0% 9.0% 5.1% 5.0% Freight ,952 2,108 2,191 1,943 2,208 2, , , ,084 3,238 % change y/y NM NM 8.0% 3.9% -11.3% 13.6% 16.1% 2.3% 0.0% 3.6% 6.2% 3.0% 11.3% 10.8% 8.7% 6.1% 9.2% 7.0% 7.0% 7.0% 7.0% 7.0% 5.0% Other % change y/y 120.4% 144.5% -70.6% 77.2% 28.1% 11.9% 6.0% -19.8% 10.3% 5.9% -3.2% 5.5% 7.5% 17.0% 13.8% 6.5% 11.7% 12.1% 10.5% 6.1% 7.6% 0.0% 5.8% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Total Supply Chain and Freight 841 1,418 1,650 2,272 2,514 2,813 5,994 8,002 8,426 8,915 7,440 8,670 9,139 2,166 2,277 2,267 2,437 9,147 2,185 2,204 2,250 2,296 8,935 2,213 2,329 2,418 2,483 9,443 9,915 % change y/y 50.2% 68.6% 16.4% 37.7% 10.7% 11.9% 113.1% 33.5% 5.3% 5.8% -16.5% 16.5% 5.4% 1.3% -1.6% -3.2% 4.0% 0.1% 0.9% -3.2% -0.7% -5.8% -2.3% 1.3% 5.7% 7.5% 8.1% 5.7% 5.0% Total consolidated revenue 26,872 29,498 30,321 31,272 33,485 36,582 42,581 47,547 49,692 51,486 45,297 49,545 52,971 13,136 13,349 13,071 14,571 54,127 13,434 13,507 13,521 14,976 55,438 13,922 14,096 14,153 15,688 57,860 60,357 % change y/y 9.3% 9.8% 2.8% 3.1% 7.1% 9.2% 16.4% 11.7% 4.5% 3.6% -12.0% 9.4% 6.9% 5.5% 1.2% -0.7% 2.9% 2.2% 2.3% 1.2% 3.4% 2.8% 2.4% 3.6% 4.4% 4.7% 4.8% 4.4% 4.3% OPERATING EXPENSES Compensation and benefits 15,285 16,546 17,311 18,046 19,251 20,760 22,517 24,421 31,497 29,826 25,933 26,466 27,575 6,835 6,747 6,681 7,112 27,375 6,968 6,981 6,961 7,647 28,557 7,289 7,218 7,221 7,876 29,604 30,701 Repairs and maintenance ,005 1,097 1,150 1,157 1,194 1,075 1,131 1, , , ,287 1,335 Depreciation and amortization 1,139 1,173 1,396 1,464 1,549 1,543 1,644 1,748 1,745 1,814 1,747 1,792 1, , , ,003 2,077 Purchased transportation 1,499 1,679 1,652 1,665 1,828 2,059 4,050 5,467 5,902 6,550 5,379 6,640 7,232 1,717 1,733 1,743 2,161 7,354 1,780 1,731 1,781 2,194 7,486 1,838 1,893 1,891 2,147 7,768 8,056 Fuel , ,050 1,416 2,085 2,655 2,974 4,134 2,365 2,972 4,046 1,025 1, ,082 4,090 1, ,061 4, ,100 4,033 4,183 Other occupancy , ,126 1,168 Other expenses 3,045 3,264 3,426 3,614 3,653 3,885 4,173 4,446 4,412 5,322 4,305 3,873 4, ,090 1,026 1,142 4,250 1,064 1,061 1,011 1,141 4,277 1,041 1,038 1,037 1,140 4,257 4,414 Total operating expenses 22,967 24,986 26,359 27,267 29,016 31,420 36,438 40,825 48,645 49,867 41,789 43,813 47,025 11,567 11,559 11,409 12,522 47,057 11,854 11,765 11,717 13,068 48,404 12,251 12,212 12,198 13,417 50,078 51,935 Total operating ratio 85.5% 84.7% 86.9% 87.2% 86.7% 85.9% 85.6% 85.9% 97.9% 96.9% 92.3% 88.4% 88.8% 88.1% 86.6% 87.3% 85.9% 86.9% 88.2% 87.1% 86.7% 87.3% 87.3% 88.0% 86.6% 86.2% 85.5% 86.6% 86.0% By segment: OPERATING EXPENSES U.S. Domestic Package 18,807 20,073 20,422 20,530 21,705 23,104 24,117 25,446 26,043 27,265 26,058 26,484 27,459 7,009 6,924 6,836 7,555 28,324 7,186 7,109 7,068 8,108 29,471 7,543 7,389 7,350 8,214 30,496 31,333 International Package 3,488 3,801 4,141 4,393 4,877 5,641 6,483 7,379 8,360 9,675 8,404 9,260 10,235 2,558 2,560 2,494 2,702 10,314 2,587 2,611 2,600 2,835 10,633 2,656 2,682 2,643 2,919 10,899 11,529 Supply Chain and Freight 672 1,112 1,796 2,344 2,458 2,675 5,838 8,000 8,077 8,460 7,130 8,079 8,403 2,000 2,075 2,079 2,265 8,419 2,042 2,045 2,049 2,125 8,261 2,052 2,141 2,205 2,284 8,683 9,073 Total operating expenses 22,967 24,986 26,359 27,267 29,040 31,420 36,438 40,825 42,480 45,400 41,592 43,823 46,097 11,567 11,559 11,409 12,522 47,057 11,815 11,765 11,717 13,068 48,365 12,251 12,212 12,198 13,417 50,078 51,935 OPERATING PROFIT U.S. Domestic Package 3,506 3,929 3,969 3,750 3,657 3,856 4,493 5,010 4,942 4,013 2,100 3,258 4, ,134 1,025 1,378 4,532 1,085 1,132 1,186 1,200 4,603 1,068 1,193 1,247 1,484 4,991 5,362 International Package ,168 1,494 1,710 1,921 1,618 1,295 1,873 1, , , ,032 2,218 Supply Chain and Freight (146) (72) Total operating profit 3,905 4,512 3,962 4,005 4,445 5,162 6,143 6,722 7,212 6,086 3,705 5,722 6,874 1,569 1,790 1,662 2,049 7,070 1,619 1,742 1,804 1,908 7,073 1,671 1,884 1,955 2,272 7,782 8,422 OPERATING RATIO U.S. Domestic Package 84.3% 83.6% 83.7% 84.6% 85.6% 85.7% 84.3% 83.6% 84.1% 87.2% 92.5% 89.0% 86.6% 87.6% 85.9% 87.0% 84.6% 86.2% 86.9% 86.3% 85.6% 87.1% 86.5% 87.6% 86.1% 85.5% 84.7% 85.9% 85.4% International Package 93.8% 93.2% 96.8% 93.1% 86.9% 82.8% 81.3% 81.2% 81.3% 85.7% 86.6% 83.2% 84.5% 86.2% 84.9% 84.7% 84.4% 85.1% 86.9% 85.3% 86.2% 84.1% 85.5% 85.7% 84.2% 84.2% 83.2% 84.3% 83.9% Supply Chain and Freight 79.9% 78.4% 108.8% 103.2% 97.8% 95.1% 97.4% 100.0% 95.9% 94.9% 95.8% 93.2% 91.9% 92.3% 91.1% 91.7% 92.9% 92.0% 93.5% 92.8% 91.1% 92.6% 92.5% 92.8% 92.0% 91.2% 92.0% 92.0% 91.5% Total operating ratio 85.5% 84.7% 86.9% 87.2% 86.7% 85.9% 85.6% 85.9% 97.9% 96.9% 92.3% 88.4% 88.8% 88.1% 86.6% 87.3% 85.9% 86.9% 88.2% 87.1% 86.7% 87.3% 87.3% 88.0% 86.6% 86.2% 85.5% 86.6% 86.0% EBITDA 5,044 5,685 5,358 5,469 5,994 6,705 7,787 8,470 8,957 7,900 5,452 7,514 8,656 2,028 2,249 2,126 2,525 8,928 2,093 2,208 2,264 2,375 8,940 2,161 2,372 2,443 2,808 9,785 10,500 % margin 18.8% 19.3% 17.7% 17.5% 17.9% 18.3% 18.3% 17.8% 18.0% 15.3% 12.0% 15.2% 16.3% 15.4% 16.8% 16.3% 17.3% 16.5% 15.6% 16.3% 16.7% 15.9% 16.1% 15.5% 16.8% 17.3% 17.9% 16.9% 17.4% Investment income (16) Interest expense (17) (228) (205) (184) (173) (121) (149) (172) (211) (246) (442) (368) (354) (348) (94) (92) (98) (109) (393) (96) (98) (92) (94) (380) (95) (95) (95) (95) (378) (378) Other income (expense) (1,786) Profit before tax 2,088 4,834 3,937 3,895 4,400 5,095 6,075 6,597 7,065 5,719 3,347 5,371 6,570 1,481 1,704 1,570 1,946 6,701 1,528 1,647 1,714 1,824 6,713 1,588 1,800 1,872 2,189 7,448 8,095 % margin 7.8% 16.4% 13.0% 12.5% 13.1% 13.9% 14.3% 13.9% 14.2% 11.1% 7.4% 10.8% 12.4% 11.3% 12.8% 12.0% 13.4% 12.4% 11.4% 12.2% 12.7% 12.2% 12.1% 11.4% 12.8% 13.2% 14.0% 12.9% 13.4% Income taxes 1,205 1,900 1,512 1,473 1,629 1,794 2,205 2,392 2,572 2,391 1,204 1,876 2, , , ,681 2,914 Tax rate 57.7% 39.3% 38.4% 37.8% 37.0% 35.2% 36.3% 36.3% 36.4% 41.8% 36.0% 34.9% 34.4% 34.5% 34.5% 34.5% 34.5% 34.5% 34.5% 35.0% 36.0% 36.0% 35.4% 36.0% 36.0% 36.0% 36.0% 36.0% 36.0% Net income (loss) from continuing operations 883 2,934 2,425 2,422 2,771 3,301 3,870 4,205 4,493 3,328 2,143 3,495 4, ,116 1,028 1,275 4,389 1,001 1,071 1,097 1,167 4,336 1,016 1,152 1,198 1,401 4,767 5,180 Extraordinary items (net of tax) (1) - (18) 1,442 (139) (26) (3) (3,997) (2,673) (172) (157) (507) 0 0 (559) (3,023) (3,582) Net income 2,325 2,795 2,399 3,254 2,898 3,333 3,870 4, ,971 3,338 3, , (1,748) 807 1,001 1,071 1,097 1,167 4,336 1,016 1,152 1,198 1,401 4,767 5,180 Preferred stock dividends Net income for common shareholders 2,325 2,795 2,399 3,254 2,898 3,333 3,870 4, ,971 3,338 3, , (1,748) 807 1,037 1,071 1,097 1,167 4,372 1,016 1,152 1,198 1,401 4,767 5,180 % margin 8.7% 9.5% 7.9% 10.4% 8.7% 9.1% 9.1% 8.8% 1.0% 1.3% 4.4% 6.7% 7.2% 7.4% 8.4% 3.6% -12.0% 1.5% 7.7% 7.9% 8.1% 7.8% 7.9% 7.3% 8.2% 8.5% 8.9% 8.2% 8.6% Average shares outstanding - diluted 1,141 1,175 1,144 1,134 1,138 1,137 1,116 1,089 1,063 1,022 1,004 1, EPS - diluted (continuing operations) $2.04 $2.38 $2.10 $2.14 $2.44 $2.90 $3.47 $3.86 $4.23 $3.25 $2.13 $3.48 $4.35 $1.00 $1.15 $1.06 $1.32 $4.53 $1.04 $1.13 $1.16 $1.25 $4.57 $1.10 $1.25 $1.31 $1.54 $5.20 $5.80 % change y/y 29.7% 16.7% -11.8% 1.8% 14.0% 19.2% 19.4% 11.3% 9.7% -23.3% -34.3% 63.1% 24.9% 9.3% 7.0% -2.4% 3.1% 4.1% 4.5% -2.1% 9.7% -5.7% 1.0% 5.2% 11.3% 12.7% 23.8% 13.6% 11.5% EPS - diluted $0.77 $2.50 $2.12 $2.87 $2.55 $2.93 $3.47 $3.86 $0.47 $0.59 $1.96 $3.33 $3.84 $1.00 $1.15 $0.48 ($1.83) $0.83 $1.08 $1.13 $1.16 $1.25 $4.61 $1.10 $1.25 $1.31 $1.54 $5.20 $5.80 % change y/y -50.7% NM -15.1% 35.4% -11.3% 15.1% 18.3% 11.4% -87.9% NM NM 69.4% 15.4% 9.3% 5.0% -55.5% NM -78.3% 8.3% -2.1% 140.3% NM NM 1.6% 11.3% 12.7% 23.8% 12.7% 11.5% Certain prior year amounts have been reclassified to conform to the current year presentation Effective January 1, 2005, UPS changed its reporting segments and restated income statement and operating statistic financials with no impact on cash flow or earnings back to Financials prior to 2001 are not on the same basis by segment and product. (1) 1999 Net Income excludes the tax assessment charge incurred in the second quarter of $1.786 billion pretax. The tax assessment reduced 1999 net income by $1.442 billion. (2) 2000 Net Income excludes $139 million related primarily to investment gains. Specifically, a $49 million gain from sale of UPS Truck Leasing subsidiary, $241 million gain on investment held by UPS' Strategic Enterprise Fund in two companies that were acquired by other companies, and a $59 million charge for retroactive costs associated with creating new full-time jobs from existing part-time Teamster jobs. (3) 2001 Net Income excludes $26 million related to FAS 133 cumulative adjustment. (4) 2002 Net Income excludes $1.114 billion pre-tax in extraordinary items, net ($832 million after-tax). Specifically, a $1.023 billion credit to expense related to the difference between an original tax assessment expense charge recorded in 1999 and the estimated settlement amount now approved, a $106 million restructuring charge in connection with reorganization of non-package operations, and a credit to operating expenses for the elimination of $197 million in vacation liability due to change in accounting methodology. (5) 2003 Net Income excludes $55mm, $38mm, $22 mm, and $39mm in one-time tax benefits through the successive quarters. In addition, 1Q03 excludes a $58mm writedown of UPS's marketable securities, reflecting market conditions, 2Q03 excludes a $24mm charge from the sale of the company's Mail Technologies unit, 3Q03 excludes a $24mm pretax gain on sale of UPS Aviation Technologies in the Non-Package segment, and 4Q03 excludes a $28mm pre-tax ($18mm after-tax) gain for the redemption of long-term debt. (6) 3Q04 Net Income excludes $99 million credit to tax expense due to the resolution of various tax matters (7) 4Q04 Net Income excludes $110 million impairment charge ($70 million after-tax) on Boeing 727, 747, and McDonnell Douglas DC-8 aircraft, and related engines and parts, of which $91 million was related to the U.S. domestic package segment and $19 million to the International package segment. 4Q04 also excludes a $63 million charge ($40 million after-tax) to pension expense resulting from the consolidation of data collection systems in the U.S. domestic package segment. In addition, 4Q04 net income excludes net credits to income tax expense of $43 million related to various items, including the resolution of certain tax matters, the removal of a portion of the valuation allowances on certain deferred tax assets on NOL carryforwards and an adjustment for identified tax contingency items. (8) 3Q06 Net Income excludes $87 million pretax charge for a tentative legal settlement involving a wage-and-hour case in California as well as a $52 million income tax benefit related to favorable developments with certain international tax issues. (9) 1Q07 excludes $221 million in pretax impairment charges on Boeing 727 and 747 aircraft, and related engines and parts ($159 million - U.S. Domestic Package and $62 million - International Package), due to the acceleration of the planned retirement of these aircraft. In addition, 1Q07 excludes a $68 million pretax charge ($53 million - U.S. Domestic Package, $7 million - International Package, and $8 million - Supply Chain & Freight) related to the special voluntary separation opportunity offered to about 640 employees to reflect the cash payout and acceleration of stock compensation and certain retiree healthcare benefits under the program. After-tax charges excluded in 1Q07 net income totaled $184 million. (10) 3Q07 excludes $46 million pretax charge ($31 million aftertax) related to the restructuring and disposal of certain operations in France within the Supply Chain segment. (11) 4Q07 excludes the $6.1 billion pre-tax ($3.8 billion after-tax) withdrawal payment to the Central States pension fun in the Domestic Package segment and on the compensation and benefits line (12) 4Q08 excludes a $548 million goodwill impairment charge for UPS Freight and a $27 million intangible impairment charge for a customer list in UK domestic package business (13) 1Q09 excludes a $181 million ($116 million after-tax) charge for on the company's DC-8 airframes, engines and parts due to an acceleration of the planned retirement of those aircraft (14) 2Q09 excludes a $77 million charge for the remeasurement of certain obligations denominated in foreign currencies, in which hedge accounting was not able to be applied. 2Q09 investment income includes $17mm write-down related to certain preferred shares and auction rate securities (marked down to fair value) (15) 1Q10 excludes a $98 million restructuring charge related to the reorganization of Domestic Package's management structure - voluntary retirement benefits, severance, and unvested stock compensation, as well as a $38 million loss on the sale of a specialized transportation business in Germany ($99mm after-tax, in total), plus a $76mm charge to income tax expense, resulting from a change in the tax filing status of a German subsidiary (16) 3Q10 U.S. Domestic Package operating profit and consolidated income before income taxes exclude a $109 million gain on the sale of real estate; net income and earnings per share amounts exclude the after-tax effect of that real estate sale, which totaled $61 million. (17) 4Q10 Supply Chain & Freight operating profit excludes a $71mm gain on the sale of UPS Logistics Technologies, partially offset by the exclusion of a $13mm fair value adjustment loss related to the guarantee associated with the sale of a specialized transportation business in Germany that occurred in 1Q10, for a net exclusion of $58mm; net income and earnings per share amounts exclude the after tax-effect of the sale and fair value adjustment, which totaled $32mm, or $0.03 per diluted share (18) 2Q11 operating profit and consolidated income before taxes excludes the impact of certain real estate transactions, including a $15 million loss for the U.S. Domestic Package segment and a $48 million gain in the Supply Chain & Freight segment, for a combined impact of $33mm ($20mm after-taxes) (19) 4Q11 and 4Q12 net income and earnings per share amounts excluded the impact of the pension mark-to-market adjustment which total $527 million and $3,023 million, respectively. (20) 1Q12 includes $9mm pretax benefit from sale of surplus supply chain facility (21) Adjusted 3Q12 U.S Domestic Package operating profit adds-back $896 million in pre-tax charges from the withdrawal liability associated with pension restructuring announced in August 2012, for an after-tax impact of $559mm (22) 4Q12 adjusted diluted earnings per share based on weighted-average shares outstanding of 965 million (23) 2013 excludes the impact of the TNT termination fee of 200mm ($268mm) and transaction-related expenses of $16 million, for a combined pre-tax charge of $284mm ($177mm after-tax). Subsequent to the termination of the merger protocol, UPS liquidated a foreign subsidiary resulting in a currency gain of $245mm ($213mm after-tax). Both transactions impacted the International Package segment. Source: Company data and Stifel estimates Page 4

5 United Parcel Service Balance Sheet David Ross, CFA / dross@stifel.com J. Bruce Chan / chanj@stifel.com (figures in $ millions, except per share amounts) A 2000A 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011A 1QA 2QA 3QA 4QA 1QA 2QA 3QA 4QE 1QE 2QE 3QE 4QA 2015E ASSETS Current assets Cash and cash equivalents 4, ,211 1, , , ,542 3,370 3,034 5,133 6,718 8,430 7,327 6,456 4,808 5,182 2,849 2,694 2,699 2,741 2,966 3,830 Marketable securities & short-term investments 2,074 1, ,888 4,458 1,672 1, , ,384 1, Accounts receivable, net 3,167 4,078 4,078 3,756 4,004 5,156 5,950 5,794 6,084 5,547 5,369 5,627 6,246 5,637 5,541 5,545 6,111 5,617 5,438 5,592 5,821 5,872 5,934 6,000 6,075 6,337 Finance receivables, net Income tax receivable , Deferred income taxes Prepaid health and welfare benefit costs 1, Other current assets , , ,152 1,121 1,246 1, , ,109 1,119 1,130 1,143 1,157 1,207 Total current assets 11,138 7,124 7,597 8,738 9,853 12,605 11,003 9,377 11,760 8,845 9,275 11,569 12,284 13,473 14,702 16,344 15,591 14,481 13,226 13,758 11,719 11,642 11,741 11,885 12,224 13,487 Property, plant, & equipment Vehicles 3,444 3,244 3,485 3,467 3,486 3,784 4,286 4,970 5,295 5,508 5,480 5,519 5,981 5,954 5,898 6,095 6,344 6,335 6,445 6,629 Aircraft (incl. aircraft under cap. leases) 8,173 8,663 9,699 10,151 10,897 11,590 12,289 13,162 13,541 14,564 13,777 14,063 14,616 14,763 15,050 15,144 15,164 15,305 15,544 15,748 Land ,026 1,056 1,068 1,079 1,081 1,114 1,110 1,101 1,119 1,122 1,121 1,122 1,128 Buildings 1,467 1,612 1,772 2,049 2,083 2,164 2,404 2,667 2,837 2,836 3,076 3,102 3,095 3,105 3,092 3,131 3,138 3,206 3,199 3,236 Leasehold improvements 1,902 2,006 2,069 2,159 2,219 2,347 2,469 2,496 2,604 2,702 2,800 2,860 2,943 2,985 2,987 3,016 3,049 3,060 3,072 3,096 Plant equipment 4,334 4,902 5,602 4,248 4,410 4,641 4,982 5,230 5,537 5,720 6,371 6,656 6,803 6,863 6,861 6,933 7,010 7,073 7,101 7,160 Technology equipment (incl. capitalized software) ,998 2,366 1,596 1,639 1,673 1,699 1,620 1,591 1,552 1,593 1,642 1,659 1,674 1,675 1,693 1,608 1,629 Equipment under operating lease Construction-in-progress Total property, plant, & equipment 20,470 21,994 24,058 25,361 26,915 27,478 29,557 32,081 33,611 35,098 34,807 35,220 36,541 36,885 37,102 37,688 38,041 38,307 38,499 38,946 39,545 40,172 40,806 41,443 42,149 44,563 Less accumulated depreciation (8,891) (9,665) (10,620) (11,749) (13,007) (13,505) (14,268) (15,302) (15,948) (16,833) (16,828) (17,833) (18,920) (19,271) (19,505) (19,859) (20,147) (20,419) (20,619) (20,954) (21,421) (21,911) (22,400) (22,887) (23,424) (25,502) Property, plant, & equipment, net 11,579 12,329 13,438 13,612 13,908 13,973 15,289 16,779 17,663 18,265 17,979 17,387 17,621 17,614 17,597 17,829 17,894 17,888 17,880 17,992 18,124 18,261 18,406 18,555 18,725 19,061 Prepaid pension costs 1,593 1,845 1,932 2,922 3,160 3,932 2,044 4, Goodwill, net 288 1,112 1,070 1,173 1,255 2,549 2,533 2,577 1,986 2,089 2,081 2,101 2,177 2,147 2,170 2,173 2,151 2,149 2,180 2,180 2,180 2,180 2,180 2,180 2,180 Intangible assets, net Other assets ,364 1,765 1,789 1,993 2,262 1,944 1,961 2,110 2,065 2,111 2,107 2,602 2,831 2,770 2,775 2,495 2,517 2,543 2,572 2,604 2,716 Total assets 23,043 21,662 24,636 26,357 28,909 33,026 35,222 33,210 39,042 31,879 31,883 33,597 34,701 35,963 37,177 39,064 38,863 38,005 36,703 37,476 35,288 35,370 35,642 35,963 36,503 38,216 LIABILITIES AND EQUITY Current liabilities Current maturities of long-term debt and commercial paper , , ,512 2, ,911 3,859 1,781 1,615 1,086 1,703 1,703 1,703 1,703 1,703 1,703 1,703 Accounts payable 1,295 1,674 1,899 1,908 2,003 2,312 2,352 1,841 1,819 1,855 1,766 1,974 2,300 2,000 2,046 1,863 2,278 1,956 2,008 1,817 2,218 2,237 2,261 2,286 2,314 2,414 Accrued wages and withholdings 998 1,134 1,169 1,084 1,166 1,197 1,324 1,303 1,414 1,436 1,416 1,505 1,843 1,881 1,780 1,839 1,927 1,903 1,858 2,035 1,940 1,957 1,978 2,000 2,025 2,112 Dividends payable Income taxes payable Tax assessment Other current liabilities ,108 1,244 1,393 1,439 1,752 2,091 2,655 2,452 2,204 2,068 2,192 2,176 2,273 2,337 2,005 1,971 2,010 2,029 2,495 2,517 2,543 2,572 2,604 2,716 Total current liabilities 4,198 4,501 4,786 5,555 5,518 6,529 6,793 6,719 9,840 7,817 6,239 5,902 6,514 7,543 8,400 10,289 8,390 8,034 7,183 7,821 8,356 8,414 8,485 8,561 8,646 8,946 Long-term debt (incl. capitalized leases) 1,912 2,981 4,648 3,495 3,149 3,261 3,159 3,133 7,506 7,797 8,668 10,491 11,095 11,079 11,112 11,148 11,089 11,051 10,837 10,897 10,897 10,897 10,897 10,897 10,897 10,897 Accumulated postretirement benefit obligation 990 1,049 1,130 1,251 1,335 1,470 1,704 2,748 4,438 6,323 5,457 4,663 5,505 5,465 5,425 5,213 11,068 11,243 11,426 11,620 8,482 8,557 8,647 8,744 8,853 9,235 Deferred taxes, credits and other liabilities 3,469 3,396 3,824 3,601 4,055 5,382 6,682 5,128 5,075 3,162 3,823 4,494 4,479 4,377 4,515 4,800 3,583 3,634 3,627 3,483 4,158 4,194 4,239 4,286 4,339 4,527 Preferred stock Class A common stock Class B common stock Additional paid-in capital 5, Retained earnings 7,536 9,684 10,162 12,495 14,356 16,192 17,037 17,676 14,186 12,412 12,745 14,164 10,128 10,433 10,827 10,448 7,997 7,614 7,185 7,102 Accumulated other comprehensive gain (loss) (170) (227) (339) (438) (177) (236) (164) (2,205) (2,013) (5,642) (5,127) (6,195) (3,103) (3,020) (3,192) (2,929) (3,354) (3,595) (3,577) (3,469) Deferred compensation arrangements Less: treasury stock, at cost 0 0 (47) (84) (136) (169) (161) (147) (137) (121) (108) (103) (88) (76) (76) (77) (78) (66) (67) (68) Noncontrolling interests Total stockholders' equity 12,474 9,735 10,248 12,455 14,852 16,384 16,884 15,482 12,183 6,780 7,696 8,047 7,108 7,499 7,725 7,614 4,733 4,043 3,630 3,655 3,396 3,308 3,374 3,475 3,768 4,612 Total liabilities and stockholders' equity 23,043 21,662 24,636 26,357 28,909 33,026 35,222 33,210 39,042 31,879 31,883 33,597 34,701 35,963 37,177 39,064 38,863 38,005 36,703 37,476 35,288 35,370 35,642 35,963 36,503 38,216 Book value per share $10.93 $8.42 $9.01 $10.97 $13.03 $14.44 $15.25 $14.32 $11.64 $6.75 $7.67 $8.01 $7.28 $7.71 $7.96 $7.85 $4.95 $4.21 $3.81 $3.87 $3.62 $3.57 $3.67 $3.80 $4.15 $5.21 Cash and short-term investments per share $5.50 $1.69 $1.42 $2.66 $3.47 $4.58 $2.75 $1.83 $2.49 $1.04 $2.09 $4.06 $4.38 $6.25 $7.54 $9.29 $8.29 $7.64 $6.50 $7.04 $3.93 $3.81 $3.85 $3.94 $4.22 $5.35 Average age of trade receivables (days) Net working capital 6,940 2,623 2,811 3,183 4,335 6,076 4,210 2,658 1,920 1,028 3,036 5,667 5,770 5,930 6,302 6,055 7,201 6,447 6,043 5,937 3,363 3,228 3,256 3,324 3,578 4,542 Current ratio 2.7x 1.6x 1.6x 1.6x 1.8x 1.9x 1.6x 1.4x 1.2x 1.1x 1.5x 2.0x 1.9x 1.8x 1.8x 1.6x 1.9x 1.8x 1.8x 1.8x 1.4x 1.4x 1.4x 1.4x 1.4x 1.5x Total assets 23,043 21,662 24,636 26,357 28,909 33,026 35,222 33,210 39,042 31,879 31,883 33,597 34,701 35,963 37,177 39,064 38,863 38,005 36,703 37,476 35,288 35,370 35,642 35,963 36,503 38,216 Long-term debt 1,912 2,981 4,648 3,495 3,149 3,261 3,159 3,133 7,506 7,797 8,668 10,491 11,095 11,079 11,112 11,148 11,089 11,051 10,837 10,897 10,897 10,897 10,897 10,897 10,897 10,897 Total debt 2,424 3,604 5,166 4,602 3,823 4,448 3,980 4,116 11,018 9,871 9,521 10,846 11,128 11,998 13,023 15,007 12,870 12,666 11,923 12,600 12,600 12,600 12,600 12,600 12,600 12,600 Net debt (cash) (3,854) 1,652 3,550 1,588 (129) (749) 939 2,133 8,414 8,822 7,421 6,765 6,853 5,918 5,701 5,991 4,946 5,334 5,731 5,951 8,920 9,067 9,053 9,002 8,766 7,864 Debt/total book capitalization 16.3% 27.0% 33.5% 27.0% 20.5% 21.4% 19.1% 21.0% 47.5% 59.3% 55.3% 57.4% 61.0% 61.5% 62.8% 66.3% 73.1% 75.8% 76.7% 77.5% 78.8% 79.2% 78.9% 78.4% 77.0% 73.2% FFO/Total debt (target 50%-60%) 121.3% 153.4% 110.6% 110.0% 126.9% 142.9% 150.5% 140.0% 32.5% 64.3% 50.6% 44.1% 62.6% 65.7% 60.1% 51.6% 59.9% 57.3% 57.7% 54.6% 34.8% 37.1% 38.5% 38.5% 61.9% 65.9% Debt/EBITDA 0.5x 0.8x 1.0x 0.8x 0.6x 0.7x 0.5x 0.5x 1.2x 1.2x 1.7x 1.4x 1.3x 1.4x 1.4x 1.5x 1.4x 1.4x 1.4x 1.5x 1.4x 1.4x 1.3x 1.3x 1.3x 1.2x Debt/EBIT 0.6x 1.1x 1.3x 1.1x 0.9x 0.9x 0.6x 0.6x 1.5x 1.6x 2.6x 1.9x 1.6x 1.7x 1.8x 1.9x 1.8x 1.7x 1.8x 1.9x 1.8x 1.8x 1.7x 1.7x 1.6x 1.5x Stockholders' equity 12,474 9,735 10,248 12,455 14,852 16,384 16,884 15,482 12,183 6,780 7,696 8,047 7,108 7,499 7,725 7,614 4,733 4,043 3,630 3,655 3,396 3,308 3,374 3,475 3,768 4,612 (1) In 2004, the company began classifying all auction rate preferred and debt instruments as marketable securities. Previously, such securities were classified as cash equivalents if the auction reset periods were three months or less. Auction rate securities held at December 31, 2003, totaling $1.887 billion were reclassified from cash equivalents into marketable securities for consistent presentation. Source: Company data and Stifel estimates Page 5

6 United Parcel Service Cash Flow Statement David Ross, CFA / dross@stifel.com J. Bruce Chan / chanj@stifel.com (figures in $ millions, except per share amounts) A 2000A 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011A 1QA 2QA 3QA 4QA 2012A 1QA 2QA 3QA 4QE 2013E 1QE 2QE 3QE 4QE 2014E 2015E Operating activities Net income 883 2,934 2,399 3,182 2,898 3,333 3,870 4, ,003 2,152 3,338 3, , (1,748) 807 1,037 1,071 1,097 1,167 4,372 1,016 1,152 1,198 1,401 4,767 5,180 Adjustments Depreciation and amortization 1,139 1,173 1,396 1,464 1,549 1,543 1,644 1,748 1,745 1,814 1,747 1,792 1, , , ,003 2,077 Postretirement benefits, net (1,057) (174) 480 (52) (2,104) (178) 4,991 4, (3,138) (2,461) Deferred taxes, credits and other 562 (81) (180) (81) (1,514) (1,043) (200) (124) (139) Stock award plans/stock compensation expense Loss (gain) on investments (2) Loss (gain) on impairment or disposal of assets Provision for losses on finance receivables Restructuring charge and related expenses Asset impairment and obsolescence charge Impairment of investments Impairment of goodwill Vacation policy change (121) Tax assessment reversal (776) (Gain) loss on investments and sale of business 0 (263) Other (gains) losses (13) (207) (48) Changes in working capital items: Accounts receivable (454) (851) (264) (686) (647) (77) (380) 197 (30) (532) (657) 585 (95) (22) (592) (124) (125) (229) 188 (51) (62) (66) (75) (254) (262) Prepaid health and welfare benefit costs (31) (27) Other current assets (3) (252) (142) (1,194) 1, (206) 107 (34) (16) (36) 26 (179) (168) (10) (12) (13) (14) (48) (50) Prepaid pension costs (593) (662) (252) (87) (990) (238) (695) Accounts payable (27) 317 (313) (56) (37) 87 (107) (276) 113 (116) 221 (58) (281) 72 (220) 401 (28) Accrued wages and withholdings (94) (73) (102) (77) (4) (45) 170 (95) Dividends payable 114 (169) Income taxes payable (399) 179 (58) (237) (237) Tax assessment 226 (311) Other current liabilities (112) 291 (32) (35) 161 (62) 56 (184) 184 (284) (73) (108) (273) (20) Other operating activities (114) (31) 86 (2) (24) (23) (33) (28) (23) (107) (25) (41) (17) 0 (83) Total change in net working capital (789) (1,555) (322) 991 (850) (723) (575) (80) (1,561) 1, (661) (181) (224) (242) (202) (186) (2) (3) (3) (4) (12) (12) Funds from operations (FFO) 3,048 4,622 4,852 5,374 5,345 5,910 6,340 5,669 2,463 6,721 4,910 4,496 6,873 1,608 1,751 1,477 2,355 7,191 1,487 1,875 1,815 (742) 4,435 1,737 1,908 1,948 2,202 7,796 8,300 Net cash provided by operations 2,259 2,804 4,570 5,688 4,646 5,331 5,793 5,589 1,123 8,426 5,285 3,835 7,073 2,280 1,570 1,253 2,113 7,216 1,758 1,673 1,629 (615) 4,445 1,735 1,905 1,945 2,198 7,784 8,287 Investing activities Capital expenditures (1,476) (2,147) (2,372) (1,658) (1,947) (2,127) (2,187) (3,085) (2,820) (2,636) (1,602) (1,389) (2,005) (428) (521) (654) (550) (2,153) (453) (537) (615) (599) (2,204) (627) (634) (637) (706) (2,604) (2,414) Disposals of property, plant, & equipment Purchases of short-term investments (3,981) (8,127) (3,361) (2,303) (6,074) (6,322) (7,623) (9,056) (9,017) (3,391) (2,251) (2,490) (4,903) (1,160) (780) (316) (101) (2,357) (501) (1,114) (860) 635 (1,840) (7) (9) (9) (11) (36) (37) Sales of short-term investments 2,290 9,345 3,686 2,211 5,909 4,724 10,375 9,538 9,638 3,113 2,240 2,520 4,490 1,462 1, , , Finance receivables 0 (62) (637) (495) (39) (49) (499) (471) (4) (5) (6) (6) (22) (22) Construction funds in escrow (111) Cash (paid) received for acquisitions/dispositions (63) (245) (466) (14) 8 (238) (1,488) (50) (2) (73) (100) (100) 0 0 (20) 0 (20) Other investing activities 3 (42) (39) (24) (6) (68) (174) 170 (44) (363) (257) (76) (86) (22) (27) (28) (32) (109) (112) Net cash (used in) provided by investing activities (3,125) (937) (3,053) (2,194) (1,942) (3,638) (975) (2,340) (2,199) (3,179) (1,248) (654) (2,537) (259) (48) (600) (428) (1,335) (753) (1,100) (610) (182) (2,645) (660) (675) (681) (755) (2,771) (2,587) Cash available for (required by) financing (866) 1,867 1,517 3,494 2,704 1,693 4,818 3,249 (1,076) 5,247 4,037 3,181 4,536 2,021 1, ,685 5,881 1, ,019 (797) 1,800 1,075 1,230 1,264 1,443 5,013 5,701 Financing activities Net change in short-term debt (513) 2,613 (2,016) (1,738) (481) (183) (2,075) 0 1,472 (427) , Proceeds from borrowings 502 2,297 2, ,094 3,613 3,160 2, , , (1) Repayments of borrowings (679) (1,168) (1,089) (1,099) (1,245) (468) (589) (90) (198) (2,518) (1,944) (468) (191) 0 (8) 0 (8) (16) (1,751) (110) 0 0 (1,861) Issuance of Class B common stock offering 5, Purchases of common stock via tender 0 (4,070) Other purchases of common stock (1,232) (1,395) (2,019) (604) (398) (1,310) (2,479) (2,460) (2,639) (3,570) (561) (817) (2,665) (547) (338) (517) (219) (1,621) (1,025) (842) (999) (1,000) (3,866) (700) (700) (700) (700) (2,800) (2,800) Issuances of common stock pursuant to stock awards and ESPPs Dividends (672) (786) (847) (849) (1,026) (1,208) (1,391) (1,577) (1,703) (2,219) (1,751) (1,818) (1,997) (534) (534) (532) (530) (2,130) (572) (568) (562) (581) (2,283) (574) (571) (567) (563) (2,275) (2,217) Other financing activities (1) (127) (69) (82) (26) (32) (8) (24) (44) (161) (360) (175) (395) 112 (68) (36) (104) (96) (252) (359) (408) Net cash (used in) provided by financing activities 3,869 (5,161) (1,493) (2,090) (2,180) (2,014) (4,175) (3,851) 2,297 (6,702) (3,045) (1,346) (4,862) (2,884) (1,817) (1,846) (2,195) (675) (1,536) (6,252) (1,229) (1,226) (1,222) (1,218) (4,895) (4,837) Beginning cash balance 1,240 4, ,211 1, , , ,542 3,370 3,034 5,133 6,718 8,430 3,034 7,327 6,456 4,808 5,182 7,327 2,849 2,694 2,699 2,741 2,849 2,966 Reclassification of (cash)/marketable securities (1,887) Effect of exchange rate changes on cash (39) (31) (45) (51) 216 (4) (13) (65) 43 (7) (10) 27 (44) (30) (26) 30 0 (26) Net increase (decrease) in cash & equivalents 2,964 (3,325) (21) 1,353 (1,147) (325) 630 (575) 1,233 (1,520) 1,035 1,828 (336) 2,099 1,585 1,712 (1,103) 4,293 (871) (1,648) 374 (2,333) (4,478) (155) Ending cash balance 4, ,211 1, , , ,542 3,370 3,034 5,133 6,718 8,430 7,327 7,327 6,456 4,808 5,182 2,849 2,849 2,694 2,699 2,741 2,966 2,966 3,830 Free cash flow (after dividends) ,487 3,270 1,791 2,071 2,242 1,002 (3,315) 3,718 1, ,098 1, ,067 3, (1,795) ,905 3,656 FCF margin 1.2% 0.4% 4.9% 10.5% 5.3% 5.7% 5.3% 2.1% -6.7% 7.2% 4.4% 1.9% 5.8% 10.2% 4.0% 0.7% 7.3% 5.6% 5.5% 4.3% 3.8% -12.0% 0.1% 3.8% 5.0% 5.2% 5.9% 5.0% 6.1% Per share $0.28 $0.10 $1.30 $2.88 $1.57 $1.82 $2.01 $0.92 ($3.12) $3.64 $1.98 $0.93 $3.13 $1.38 $0.54 $0.10 $1.12 $3.12 $0.78 $0.61 $0.55 ($1.92) $0.05 $0.58 $0.76 $0.81 $1.02 $3.17 $4.09 Free cash flow (before dividends) ,334 4,119 2,817 3,279 3,633 2,579 (1,612) 5,937 3,743 2,750 5,095 1,871 1, ,597 5,158 1,317 1,148 1,080 (1,214) 2,331 1,108 1,271 1,308 1,492 5,180 5,873 FCF margin 3.7% 3.1% 7.7% 13.2% 8.4% 9.0% 8.5% 5.4% -3.2% 11.5% 8.3% 5.6% 9.6% 14.2% 8.0% 4.8% 11.0% 9.5% 9.8% 8.5% 8.0% -8.1% 4.2% 8.0% 9.0% 9.2% 9.5% 9.0% 9.7% Per share $0.87 $0.77 $2.04 $3.63 $2.48 $2.88 $3.26 $2.37 ($1.52) $5.81 $3.73 $2.74 $5.14 $1.92 $1.09 $0.65 $1.67 $5.32 $1.37 $1.21 $1.14 ($1.30) $2.46 $1.20 $1.38 $1.43 $1.64 $5.65 $6.57 Current share price $95.78 Net FCF yield 3.3% 3.3% 0.1% 3.3% 4.3% FCF yield 5.4% 5.6% 2.6% 5.9% 6.9% Dividend/FCF NM NM 36.3% 20.6% 36.4% 36.8% 38.3% 61.1% NM 37.4% 46.8% 66.1% 39.2% 41.3% 97.9% 43.9% 37.7% CapEx, net/ocf 55.9% 67.6% 48.9% 27.6% 39.4% 38.5% 37.3% 53.9% 243.5% 29.5% 29.2% 28.3% 28.0% 28.5% 47.6% 33.5% 29.1% Source: Company data and Stifel estimates Page 6

7 Important Disclosures and Certifications I, David G. Ross, certify that the views expressed in this research report accurately reflect my personal views about the subject securities or issuers; and I, David G. Ross, certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. For our European Conflicts Management Policy go to the research page at Rating and Price Target History for: United Parcel Service, Inc. (UPS) as of /02/11 B:$83 04/26/11 B:$87 08/24/11 B:$79 11/15/11 B:$80 02/01/12 B:$83 03/20/12 H:NA Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q Rating Key B - Buy H - Hold S - Sell I - Initiation D - Dropped UR - Under Review NR - No Rating NA - Not Applicable RS - Rating Suspended For a price chart with our ratings and target price changes for UPS go to Created by BlueMatrix Stifel expects to receive or intends to seek compensation for investment banking services from United Parcel Service, Inc. in the next 3 months. Stifel makes a market in the securities of United Parcel Service, Inc.. Stifel research analysts receive compensation that is based upon (among other factors) Stifel's overall investment banking revenues. Our investment rating system is three tiered, defined as follows: BUY -For U.S. securities we expect the stock to outperform the S&P 500 by more than 10% over the next 12 months. For Canadian securities we expect the stock to outperform the S&P/TSX Composite Index by more than 10% over the next 12 months. For other non-u.s. securities we expect the stock to outperform the MSCI World Index by more than 10% over the next 12 months. For yield-sensitive securities, we expect a total return in excess of 12% over the next 12 months for U.S. securities as compared to the S&P 500, for Canadian securities as compared to the S&P/TSX Composite Index, and for other non-u.s. securities as compared to the MSCI World Index. HOLD -For U.S. securities we expect the stock to perform within 10% (plus or minus) of the S&P 500 over the next 12 months. For Canadian securities we expect the stock to perform within 10% (plus or minus) of the S&P/TSX Composite Index. For other non-u.s. securities we expect the stock to perform within 10% (plus or minus) of the MSCI World Index. A Hold rating is also used for yield-sensitive securities where we are comfortable with the safety of the dividend, but believe that upside in the share price is limited. SELL -For U.S. securities we expect the stock to underperform the S&P 500 by more than 10% over the next 12 months and believe the stock could decline in value. For Canadian securities we expect the stock to underperform the S&P/TSX Composite Index by more than 10% over the next 12 months and believe the stock could decline in value. For other non-u.s. securities we expect the stock to underperform the MSCI World Index by more than 10% over the next 12 months and believe the stock could decline in value. Page 7