Looking ahead, UPS expects its free cash flow to be around $8 billion in 2023. And while that’s lower than 2022, it’s more than enough to achieve the company’s goal of paying out roughly $5.4 billion in dividends this year. The company also intends to buy back around $3 billion of its shares.
“We are focused on controlling what we can control, but we will continue to invest in our business to balance efficiency and growth opportunities under our better and bolder framework,” said UPS CFO Brian Newman during the company’s earnings call.
UPS CEO Carol Tome described the “outlook for economic growth” on the call as “cloudy” as geopolitical tensions rise and the company negotiates a labor contract. “For us, it is a year of resilience,” Tome said, adding that UPS “will plan conservatively and pivot quickly.”
Free cash flow is the sum of net cash provided by operating activities and net cash flow used in investing activities. This measure is useful when evaluating cash available for financing activities, including shareholder distributions, after investment in the business.
UPS is among the holdings of the FCF US Quality ETF (TTAC), which aims to outperform the Russell 3000 through a fundamentals-driven investment process that selects about 150 stocks based on free cash flow strength. Its holdings are then weighted by a modified market-cap log transformation, allowing increased exposure to companies with the strongest proprietary free cash flow rankings.
Bob Shea, CEO and CIO of FCF Advisors, said he believes that “GAAP earnings have significant disadvantages,” and “accounting practices allow a lot of leeway and discretion to management.” Meanwhile, “the ability to manipulate and distort free cash flow is a lot more difficult than with earnings.”
“Over the last several quarters, the market has been demanding profitability, and we’ve been measuring profitability through free cash flow,” Shea added.
FCF Advisors specializes in free cash flow investment strategies, primarily through its Free Cash Flow Quality Model (FCFQM), a multi-factor model featuring a combination of quality measures informed by the firm’s research.
TTAC’s portfolio will also be rated with an ESG score, excluding companies with low ESG ratings. Firms with an extreme rise in share count and increase in leverage are excluded.
For more news, information, and analysis, visit the Free Cash Flow Channel.