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Why UPS is Going Green:

UPS issued a press release on Tuesday to announce their purchase of 200 hybrid electric vehicles (HEVs) to compliment their already existing order for 300 compressed natural gas (CNG) vehicles for their US fleet.

While this purchase has been spun as a positive marketing tool for UPS to improve the perception among consumers and their clients of the environmental initiatives they undertake, the true motives of these purchases still revolves around profitability for the company and a focus on decreasing costs.

In the fiscal year 2007, UPS spent a total of $2.97B in fuel costs for its entire global operations; a 12% increase vs. 2006. The savings stated alone in their press release (176,000gal/yr @ $3.20/gal) will amount to around $560,000. That might seem like pennies in comparison to their total fuel expenses (less than 2% decrease), but it demonstrates that UPS is focused on targeting cost savings in an environment of increased costs and negative sentiment towards fuel surcharges by their customers.

The trend of moving towards more cost-effective (green) vehicles makes sense for a shareholder who is concerned with future revenue and profit growth of a company. Alternative-fuel vehicles only represent 2.4% of their entire delivery fleet at this time, but demonstrate a strong commitment by the company to begin looking towards putting cost controls in place to contribute to future profitability.

As an investor I focus on corporations who have the initiative to reduce expenses in order to continue improving profitability and creating long-term value for shareholders. This falls within my 5% Rule and UPS is one of the best I’ve found at concentrating on what they can tangibly change in reference to future cost-cutting while maintaining a positive image of change in marketing activities to heighten the awareness within the environmental movement. Conservation is key.

Disclosure: I initiated a position in UPS on Monday for my RSP Portfolio

{ 3 comments… add one }
  • MG (moneygardener) May 15, 2008, 2:40 pm

    I like UPS too, but it’s never a cheap stock. I have been waiting for it to drop significantly before getting in for the long term.

  • MG (moneygardener) May 15, 2008, 2:44 pm

    By the way, keep up the insightful, short 🙂 posts!
    You know I have a 4 month old…time is a rare commodity…

  • Nurse B, 911 May 15, 2008, 8:00 pm

    Yeah MG, rarely cheap but one that was on my “need” list among core holdings and I figured $70 was as good of an entry as I would get in the short-term. I can always add more, but there’s few companies with this global of a moat and I’m ok with paying a slight premium for that.

    I’ve noticed recently that although the academic readers enjoy the long, indepth posts on various topics and I get emails on them – its these short and “insightful” posts that drive comments and traffic from readers and other sites. I might start to focus 1-2 posts per week on these random thoughts I get from the markets to give some Value Insight into what I’m thinking and how it pertains to my investments.

    4 months old?…time to get started on the next one? 😉 lol.

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