UPS adopts more aggressive debt policy
UPS said Wednesday its board of directors has approved a new financial policy to allow the company to take on significantly more debt to invest in operations, pursue acquisitions and buy back stock.
The Atlanta-based integrated logistics provider has historically generated large cash flows, and company officials said they can comfortably put more debt on their balance sheet without harming the company’s growth.
Under the new policy, debt will range from 50 percent to 60 percent of cash from operations. The company said it previously didn’t have a debt target.
The board immediately authorized an increase in the amount of funds available for stock repurchases from about $2 billion to $10 billion. UPS said it intends to complete that level of repurchases within two years. Many public companies have bought more stock in the past year to increase value for their shareholders. During that time UPS’s share value has dropped 10 percent.
“UPS has had a longstanding commitment to a very strong balance sheet for decades and that will not change,' said Scott Davis, UPS's chairman and CEO, in a statement. 'Indeed, we are putting that balance sheet strength to work to more efficiently deploy capital for the benefit of our shareowners.”
Davis was chief financial officer of UPS before taking the reins from Michael Eskew, who recently retired.
In response to the less conservative financial policy, Standard & Poor’s Ratings Services lowered its corporate credit and senior debt ratings on UPS to AA- from AAA. Moody’s Investor Service also reduced its long-term rating on UPS.
A UPS spokesman told Bloomberg that the stock buyback was made possible by the recent Teamster contract that allowed the company to exit a multiemployer pension plan and save money on income tax expenses. Workers will be shifted to a new pension plan run by UPS and the union. ' Eric Kulisch