United Parcel Service's Earnings Declined in Q3. Is the Dividend Still Safe?
Key PointsUPS achieved positive revenue growth of 7% in its most recent quarter.
United Parcel Service (UPS) reported a decline in earnings for the third quarter of 2022, raising concerns about the sustainability of its dividend. The company's consolidated revenue for the period ending September 30, 2022, was $22.9 billion, a 7% increase year-over-year. However, diluted earnings per share (EPS) fell to $1.37, down from $1.55 in the previous year.
UPS also incurred $130 million in after-tax costs related to its transformation strategy and $182 million in goodwill impairment. On an adjusted basis, EPS was $1.69. UPS maintains a quarterly dividend of $1.64, but the payout may be barely sustainable given the company's recent financials. The free cash flow, which accounts for capital expenditures, averaged $1.4 billion quarterly over the past nine months, closely matching the dividend amount.
While a dividend cut is not imminent, the economic challenges posed by rising oil prices and inflation may cause UPS's financial performance to deteriorate further in future quarters. The dividend may need to be adjusted to improve profitability, which could necessitate a temporary reduction in payouts. Despite a 9% increase in UPS stock this year, the company's financial performance remains a concern.
While UPS could still be a long-term investment, there are potentially better dividend stocks available for investors at this time.
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