U N IT E D PA R C E L

S E RV IC E
(U P S : $107.67)
June 2017
Investment Thesis: Buy United Parcel Service (UPS)
World class, global franchise trading at a rare discount to S&P 500

Relative valuation most attractive it has been in at least a decade

Investor concerns regarding Amazons accelerated logistics investments and misunderstandings about the impact of B2C
growth has caused UPS to underperform the S&P 500 Industrials by 1,900 basis points since the 2016 Presidential election.
For the first time in over 10 years UPS trades at a valuation discount to both the S&P 500 and the S&P 500 Industrials sector.

High quality business with exposure to industrial growth drivers

Opportunity to participate in accelerated global industrial growth via a well-managed, high quality, relatively defensive
industrials business with industry-leading margins, ROIC, and cash generation, trading at an historically low relative valuation.

Variant view: Amazon risk is overstated and growth in B2C will be a net positive for UPS
Investors are overly concerned about Amazons potential entry into small package delivery and logistics, are overestimating
the long-term negative mix shift to B2C, and underappreciating the positive impact of UPSs network investments, improving
industry pricing dynamics, and optionality from accelerated economic growth and potential corporate tax reform.

Valuation and Projected Return

UPS currently yields 3.1% and trades at 17.7x EPS, 12% below its median high of 19.8x and just 3% above its median low of
17.1x (favorability ratio of 3.2x). Assuming annual EPS growth of 9%, UPS should generate a total shareholder return
(including dividends) of 11% - 16%.

1
Investment Thesis: Attractive Valuation
UPS has been one of the worst performing S&P 500 Industrial stocks since the Election and
now, for the first time in over 10 years, trades at a discount to the S&P 500 and S&P 500
Industrials sector.
Since Since
UPS Relative P/E Multiple (vs. S&P 500)
Symbol Company Name Election Symbol Company Name Election
CSX CSX Corporation 70.2% FBHS Fortune Brands Home & Security, I 16.5%
ARNC Arconic Inc. 60.7% AAL American Airlines Group Inc. 17.6%
LUV Southwest Airlines Co. 43.8% PNR Pentair plc 18.4%
DE Deere & Company 40.1% SRCL Stericycle, Inc. 13.4%
UAL United Continental Holdings, Inc. 36.5% EFX Equifax Inc. 8.5%
AME AMETEK, Inc. 35.5% FLS Flowserve Corporation 17.8%
ROP Roper Technologies, Inc. 32.0% WM Waste Management, Inc. 12.5%
BA The Boeing Company 31.7% TXT Textron Inc. 17.2%
COL Rockwell Collins, Inc. 30.0% RTN Raytheon Company 19.6%
ROK Rockwell Automation Inc. 28.8% EMR Emerson Electric Co. 15.4%
NSC Norfolk Southern Corporation 29.7% LMT Lockheed Martin Corporation 17.5%
GD General Dynamics Corporation 31.7% DAL Delta Air Lines, Inc. 11.9%
URI United Rentals, Inc. 44.9% PCAR PACCAR Inc 14.6%
RSG Republic Services, Inc. 23.3% FDX FedEx Corporation 9.4%
MAS Masco Corporation 22.8% EXPD Expeditors International of Washin 7.7%
PH Parker-Hannifin Corporation 26.1% NOC Northrop Grumman Corporation 12.1% UPS Relative P/E Multiple (vs. S&P 500 Industrials)
IR Ingersoll-Rand Plc 24.7% XYL Xylem Inc. 6.4%
ALK Alaska Air Group, Inc. 21.3% PWR Quanta Services, Inc. 8.2%
MMM 3M Company 19.5% FAST Fastenal Company 7.4%
DOV Dover Corporation 25.1% JBHT J.B. Hunt Transport Services, Inc. 1.5%
HON Honeywell International Inc. 20.6% TDG TransDigm Group Incorporated -1.3%
ALLE Allegion plc 20.4% VRSK Verisk Analytics, Inc. -2.1%
ITW Illinois Tool Works Inc. 21.7% JEC Jacobs Engineering Group Inc. 6.4%
CTAS Cintas Corporation 20.2% JCI Johnson Controls International plc -4.0%
FTV Fortive Corporation 19.6% UPS United Parcel Service, Inc. -3.9%
ETN Eaton Corporation plc 23.9% CHRW C.H. Robinson Worldwide, Inc. -4.1%
UNP Union Pacific Corporation 22.1% FLR Fluor Corporation 3.6%
RHI Robert Half International Inc. 21.6% GE General Electric Company -5.8%
CMI Cummins Inc. 22.7% NLSN Nielsen Holdings plc -12.7%
UTX United Technologies Corporation 17.8% GWW W.W. Grainger, Inc. -18.0%
KSU Kansas City Southern 3.5% AYI Acuity Brands, Inc. -27.7%
CAT Caterpillar Inc. 24.8%

2
Business overview: Company History and Recent Performance

Founded in 1907, UPS is the worlds leader in package Recent financials highlights
delivery and a leader in less-than-truckload services and
2011 2012 2013 2014 2015 2016
supply chain management solutions.
Revenue 53,141 54,157 55,438 58,232 58,363 60,906
In 2016, UPS delivered an average of over 19 million Growth 1.9% 2.4% 5.0% 0.2% 4.4%
packages per day for 1.6 million customers in 220
Adjusted EBIT 6,874 7,070 7,073 7,132 7,786 8,118
countries. Margin 12.9% 13.1% 12.8% 12.2% 13.3% 13.3%

Management is led by CEO David Abney, who began his Adjusted EPS $4.35 $4.53 $4.57 $4.75 $5.43 $5.75
Growth 4.1% 1.0% 3.9% 14.4% 5.9%
career with UPS in 1974 and was named CEO in 2014.
Free Cash Flow 5,068 5,063 5,239 3,398 5,051 3,508
Growth -0.1% 3.5% -35.1% 48.6% -30.5%

Operating Segments Recent stock performance

Revenue % of Total Adj. EBIT % of Total

U.S. Domestic Package 38,301 63% 4,925 61%
International Package 12,350 20% 2,469 30%
Supply Chain & Freight 10,255 17% 724 9%
Total 60,906 100% 8,118 100%

3
Investment Thesis: Track Record of Strong Financial Performance
Returns-focused management team produces industry-leading operating metrics and
shareholder-friendly capital allocation policies.
Industry-leading Operating Margins Strong Free Cash Flow Conversion

2011 2012 2013 2014 2015 2016

UPS
Revenue 53,105 54,127 55,438 58,232 58,363 60,906
Free Cash Flow 5,068 5,063 5,239 3,398 5,051 3,508
Free Cash Flow Margin 9.5% 9.4% 9.5% 5.8% 8.7% 5.8%

FDX
Revenue 39,304 42,680 44,287 45,567 47,453 50,365
Free Cash Flow 607 828 1,313 731 1,019 890
Free Cash Flow Margin 1.5% 1.9% 3.0% 1.6% 2.1% 1.8%

Sustainably High Returns on Invested Capital Substantial Capital Returned to Shareholders

2011 2012 2013 2014 2015 2016

After-tax Operating Profit 4,509 4,631 4,569 4,600 5,139 5,317

Beginning Total Debt 10,846 11,128 11,120 10,872 10,787 14,334

Ending Total Debt 11,128 11,120 10,872 10,787 14,334 16,075
Beginning Shareowners' Equity 10,387 9,853 7,941 6,566 5,356 5,200
Ending Shareowners' Equity 9,853 7,941 6,566 5,356 5,200 3,850
Average Invested Capital 21,107 20,021 18,250 16,791 17,839 19,730

Return on Invested Capital 21.4% 23.1% 25.0% 27.4% 28.8% 26.9%

4
Investment Thesis: Cost and Efficiency Initiatives + Yield Management = Higher Returns

Investing to lower costs and improve efficiency; targeting $800mm-$1Bn in cost savings.

5
Investment Thesis: Cost and Efficiency Initiatives + Yield Management = Higher Returns

Initiatives underway to lower costs, improve efficiencies, and increase route density.

Cost
Initiative Description Opportunity

ORION (On-Road Integrated Optimization & On-Road Integrated Optimization & Navigation. Utilizes algorithms to provide drivers with $150-
Navigation) optimal delivery routes. Designed to create additional capacity, lower costs, and improve $200mm
efficiency by reducing miles driven and optimizing route structures. Completed Phase 1
($400mm of savings).

NPT (Network Planning Tool) Allows UPS to optimize its entire network. Will allow UPS to reroute in-transit packages from $100-
one hub (that is operating at or above full capacity) to another hub that is operating below $200mm
capacity. Will be rolled out by 2020.

EDGE (Enhanced Dynamic Global Execution) Designed to make UPS's daily operations smarter and more efficient. Optimizes operating plan $200-
by utilizing real-time data and mobile tools. $300mm

Hub Automation / Modernization Gradually automating sorting hubs. Currently 40% of volumes go through sites with high levels $300-
of automation; planning to get to 80% in 3 years. $400mm

SurePost Redirect SurePost is residential ground economy service in which UPS provides the linehaul movement
and USPS provides final mile delivery. SurePost redirect initiative shifts some deliveries back
onto its own network for final mile delivery (e.g., when it is already delivering something to the
same customer). Increases route density and cuts down on fees paid to USPS.

UPS Access Points Access Points include The UPS Store locations and local businesses and grocery stores that have
partnered with UPS to deliver packages as an alternative to residential delivery. Inceases
network density by effectively turning B2C deliveries into B2B deliveries.

UPS My Choice Allows receiving customers to redicte deliveries to alternate locations. Often more convenient
for customers and UPS avoids the cost of multiple deliveries.

Source: UPS Investor Day; Wells Fargo Initiation Report

6
Investment Thesis: Cost and Efficiency Initiatives + Yield Management = Higher Returns

Package delivery companies increasingly focused on yield management and better balancing
the trade-off between growth and margins. FedEx meaningfully slowing capacity growth,
USPSs financial condition becoming dire, and UPS emphasizing value-based pricing. These
dynamics should support higher prices and margins for everyone.

Average Rev/Piece Growth (Domestic)

3.0% 2.4%
1.6% 1.7%
2.0% 1.3%
1.0% 0.9%
1.0% 0.6% 0.4% 0.3% 0.2%
-0.2% -0.3% -0.1% -0.3%
0.0% -0.8% -0.8%
-1.3% -1.5% -1.5% -1.3%
-1.0%
-2.0%
-2.0%

-3.0%
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17

7
Investment Thesis: B2C Mix Shift is Misunderstood
Rapid growth in e-commerce (B2C) has contributed to healthy revenue growth in the U.S.
Domestic Package business but has pressured margins and EBIT growth. The margin
pressure is due to the less efficient nature of residential deliveries.

U.S. Domestic Package Segment

8.0% 14.0%
7.1%
6.4% 13.8%
6.0% 13.6%
5.2%

4.2% 13.4%
4.0% 3.6% 3.7%
13.2%
2.5%
2.0% 13.0%
2.0% 1.6%
12.8%

12.6%
0.0%
2012 2013 2014 2015 2016 12.4%

-2.0% 12.2%
-2.0%
12.0%

-4.0% 11.8%

Revenue Growth EBIT Growth Adj EBIT Margins

8
Investment Thesis: B2C Mix Shift is Misunderstood (continued)
Incremental growth from B2C is a nice problem to deal with. The UPS network was not built
for B2C, but incremental investment in hub modernization and more appropriate pricing and
cost management should relieve margin pressure long-term.

Management is aggressively stepping up investment in its smart global logistics network in what
CEO David Abney referred to as the most sweeping transformation of our network in decades.
These investments, along with increased scale and more value-based pricing should turn support
margin expansion and enable UPS to see greater benefit from the rapid growth in e-commerce.

9
Investment Thesis: Amazon Threat is Overstated
Increased investment by Amazon in its own logistics capabilities has some investors
concerned that Amazon could eventually in-source its deliveries or even compete with
UPS and FedEx for third party business (AWS for Logistics).

Perception Reality

Amazon will continue to invest in its own Most likely strategic rationale for Amazon is to ensure that it has sufficient, reliable, and affordable capacity
logistics capabilities and will eventually in- during peak periods and, potentially, to ensure that it has leverage over UPS and FedEx.
source the majority (or all) of their deliveries.

Would be incredibly difficult to build out a network of sufficient size and geographic scope, with the required
level of design sophistication, to compete with UPS and FedEx. According to FedEx CEO Fred Smith, it would cost
"tens of billions" of dollars and take many years. There are also capacity issues that exist in building such a
network (e.g., availability of planes, sufficient contract labor, etc.).

Amazon is using the "AWS playbook" to develop
a shipping and logistics platform that can
compete with UPS and FedEx.
In addition to the challenges associated with building a network capable of competing with UPS and FedEx, it does
not seem like this initiative would further Amazon's goals in its core e-commerce business (faster, cheaper, more
reliable deliveries for customers) nor does it seem likely to succeed as a stand-alone business. Unlike in the case
of AWS, with package delivery there are already established incumbents; this would effectively be an "overbuild"
and so inherently lower-return than AWS. Furthermore, Amazon would have great difficulty convincing other
retailers to turn over their shipping and logistics functions to a competitor.

10
Model and Financial Projections

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Revenue
U.S. Domestic Package 29,742 31,717 32,856 34,074 35,851 36,747 38,301 40,335 42,297 44,170 46,374
International Package 11,133 12,249 12,124 12,429 12,988 12,149 12,350 12,633 13,269 14,318 15,394
Supply Chain & Freight 8,670 9,175 9,177 8,935 9,393 9,467 10,255 11,282 11,864 12,390 13,006
Total Revenue 49,545 53,141 54,157 55,438 58,232 58,363 60,906 64,250 67,430 70,878 74,774
Growth 9.4% 7.3% 1.9% 2.4% 5.0% 0.2% 4.4% 5.5% 4.9% 5.1% 5.5%
Consensus 64,206 67,431 71,200 75,120

Adjusted EBIT
U.S. Domestic Package 3,258 4,258 4,532 4,603 4,509 4,829 4,925 5,225 5,583 5,963 6,400
International Package 1,873 1,880 1,810 1,796 1,905 2,181 2,469 2,270 2,460 2,678 2,925
Supply Chain & Freight 591 736 728 674 718 776 724 795 842 904 975
Total Adjusted EBIT 5,722 6,874 7,070 7,073 7,132 7,786 8,118 8,290 8,886 9,545 10,300
Margin 11.5% 12.9% 13.1% 12.8% 12.2% 13.3% 13.3% 12.9% 13.2% 13.5% 13.8%

Other income (expense):

Investment income 3 44 24 20 22 15 47 31 31 31 31
Interest expense (354) (348) (393) (380) (353) (341) (381) (408) (408) (408) (408)
Total Other Income (351) (304) (369) (360) (331) (326) (334) (377) (377) (377) (377)

Pre-tax Income 5,371 6,570 6,701 6,713 6,801 7,460 7,784 7,912 8,508 9,167 9,922
Tax Expense 1,876 2,259 2,312 2,377 2,412 2,537 2,680 2,727 2,935 3,163 3,423
Tax Rate 34.9% 34.4% 34.5% 35.4% 35.5% 34.0% 34.4% 34.5% 34.5% 34.5% 34.5%
Net income (loss) 3,495 4,311 4,389 4,336 4,389 4,923 5,104 5,185 5,573 6,005 6,499
Adjusted EPS $3.48 $4.35 $4.53 $4.57 $4.75 $5.43 $5.75 $5.97 $6.46 $7.06 $7.76
Growth 24.8% 4.1% 1.0% 3.9% 14.4% 5.9% 3.7% 8.3% 9.3% 9.8%
Consensus $5.96 $6.42 $7.01 $7.74
Shares Outstanding 1,003 991 969 948 924 906 887 869 862 850 838
Key Drivers
Revenue Growth
U.S. Domestic Package 6.6% 3.6% 3.7% 5.2% 2.5% 4.2% 5.5% 4.9% 4.4% 5.0%
International Package 10.0% -1.0% 2.5% 4.5% -6.5% 1.7% 2.3% 5.0% 7.9% 7.5%
Supply Chain & Freight 5.8% 0.0% -2.6% 5.1% 0.8% 8.3% 10.0% 5.2% 4.4% 5.0%
Total Revenue Growth 7.3% 1.9% 2.4% 5.0% 9.2% 4.3% 2.1% 4.9% 5.1% 5.5%

Adjusted EBIT Margin

U.S. Domestic Package 11.0% 13.4% 13.8% 13.5% 12.6% 13.1% 12.9% 13.0% 13.2% 13.5% 13.8%
International Package 16.8% 15.3% 14.9% 14.5% 14.7% 18.0% 20.0% 18.0% 18.5% 18.7% 19.0%
Supply Chain & Freight 6.8% 8.0% 7.9% 7.5% 7.6% 8.2% 7.1% 7.0% 7.1% 7.3% 7.5%
Total Adjusted EBIT Margin 11.5% 12.9% 13.1% 12.8% 12.2% 13.3% 13.3% 12.9% 13.2% 13.5% 13.8%

11
Valuation and Projected Return
UPS offers better than a 3:1 favorability ratio based on the 5-year median P/E multiple range.
Assuming ~9% EPS growth and a ~3% dividend yield, UPS offers a projected IRR range of
11%-16% from the median low to high P/E.

Warranted Value Return Projection (Annualized)

Median Median
Low High Downside Upside
NTM EPS $6.07 $6.07 Revenue Growth 5.2% 5.2%
Multiple 17.1x 19.8x EBIT Growth 7.5% 7.5%
Net Income Growth 7.8% 7.8%
Share Repurchases 1.2% 1.2%
Warranted Value $103.80 $120.19 EPS Growth 9.1% 9.1%
Current Price $107.67 $107.67 Dividend 3.1% 3.1%
Upside (Downside) -3.6% 11.6% Multiple Expansion -1.2% 3.7%
Asymmetry 3.2x Annualized Return 10.9% 15.9%

Historical Multiple Analysis

#REF! #REF! #REF! #REF! #REF!5-Year

2013 2014 2015 2016 2017 Median

P/E Multiple C urre nt Multiple

High 19.8x 20.5x 19.6x 19.8x 19.2x 19.8x UPS $107.67
Low 14.8x 17.5x 17.3x 15.7x 17.1x 17.1x NT M EPS $6.07

12
Appendix

13
S&P 500 Industrials Comp Table

Val u ati on (NTM)

Last Mark e t De bt / S al e s Growth EPS Growth EV / % of 52-W e e e k Re tu rn s

Symbol Company Name C l ose C ap EV EBITDA 2011-2016 2017-2019 2011-2016 2017-2019 EBITDA P /E Low Hi gh ROIC ROE

INDUS TRIALS MEDIAN 1.6x 1.6% 4.7% 6.7% 10.9% 11.3x 19.0x 29.5% 96.1% 11% 21%

Ae rospace & De fe n se
ARNC Arconic Inc. $27.42 12,087 17,698 2.9x N/A 5.2% N/A 23.5% 9.2x 22.9x 63.7% 89.3% 0% 0%
BA T he Boeing Company $186.59 112,622 114,276 0.1x 6.6% 4.0% 8.0% 11.7% 9.8x 19.2x 52.5% 99.5% 35% 241%
GD General Dynamics Corporat ion $202.24 61,013 62,734 0.4x -0.8% 5.1% 5.7% 7.6% 13.3x 20.7x 52.4% 99.8% 19% 30%
LLL L3 T echnologies, Inc. $167.14 13,016 16,197 2.3x -4.4% 3.9% -1.7% 9.2% 11.9x 18.7x 16.4% 92.9% 8% 14%
LMT Lockheed Mart in Corporat ion $283.65 82,100 94,262 1.7x 0.3% 4.5% 7.4% 14.2% 13.3x 22.0x 24.1% 99.9% 18% 156%
NOC Nort hrop Grumman Corporat io $256.99 44,863 50,520 1.5x -1.5% 6.2% 8.2% 10.2% 13.4x 21.5x 24.3% 99.6% 17% 41%
RT N Rayt heon Company $163.30 47,532 50,633 0.8x -0.6% 4.2% 6.7% 12.5% 12.8x 21.5x 26.6% 99.8% 13% 21%
COL Rockwell Collins, Inc. $107.30 17,423 19,357 1.0x 1.8% 16.1% 5.6% 14.0% 10.0x 15.9x 36.6% 99.4% 14% 33%
T XT T ext ron Inc. $48.16 12,892 16,149 2.1x 4.1% 3.6% 23.0% 14.8% 10.2x 18.0x 41.6% 94.6% 7% 15%
T DG T ransDigm Group Incorporat ed $264.41 13,756 23,905 5.7x 21.3% 5.4% 19.0% 10.9% 13.5x 20.4x 29.8% 89.8% 11% N/A
UT X Unit ed T echnologies Corporat i $121.85 97,630 117,041 1.8x 0.5% 4.3% 1.6% 8.1% 11.1x 18.4x 25.8% 99.2% 9% 19%
Me di an 1.7x 0.4% 4.5% 7.0% 11.7% 11.9x 20.4x 29.8% 99.4% 13% 26%

Ai r Fre i gh t & Logi sti cs

CHRW C.H. Robinson Worldwide, Inc. $67.04 9,445 10,455 1.1x 4.9% 5.2% 6.1% 7.3% 11.3x 18.7x 2.2% 82.6% 22% 41%
EXP D Expedit ors Int ernat ional of Wa $52.95 9,540 8,387 -1.6x -0.2% 4.8% 4.8% 6.4% 11.7x 21.8x 13.9% 91.7% 22% 23%
FDX FedEx Corporat ion $194.26 51,940 63,525 1.3x 5.1% 4.8% 7.6% 14.6% 6.9x 14.6x 34.0% 96.4% 12% 13%
UP S Unit ed P arcel Service, Inc. $106.81 91,870 105,435 1.3x 2.8% 5.3% 0.1% 8.5% 9.7x 17.4x 4.8% 88.7% 19% 228%
Me di an 1.2x 3.9% 5.0% 5.5% 7.9% 10.5x 18.1x 9.3% 90.2% 20% 32%

Ai rl i n e s
ALK Alaska Air Group, Inc. $86.62 10,706 11,859 0.5x 6.6% 7.1% 30.0% 9.0% 5.0x 10.6x 58.9% 85.4% 19% 27%
AAL American Airlines Group Inc. $48.74 24,009 41,876 2.2x 10.9% 2.8% N/A 13.4% 5.2x 9.8x 96.1% 96.2% 12% 54%
DAL Delt a Air Lines, Inc. $50.80 37,250 43,832 0.8x 2.5% 3.1% 44.3% 10.5% 5.2x 9.5x 55.8% 96.3% 18% 33%
LUV Sout hwest Airlines Co. $60.67 36,685 36,269 -0.1x 5.5% 5.2% 60.3% 16.5% 6.4x 15.2x 71.3% 99.2% 22% 27%
UAL Unit ed Cont inent al Holdings, In $81.25 25,160 33,624 1.2x -0.2% 3.7% 31.2% 17.3% 4.9x 11.1x 117.2% 99.1% 14% 25%
Me di an 0.8x 5.5% 3.7% 37.7% 13.4% 5.2x 10.6x 71.3% 96.3% 18% 27%

Bu i l di n g Produ cts
ALLE Allegion plc $79.38 7,564 8,830 2.2x 2.1% 4.6% 0.6% 11.4% 15.2x 20.9x 29.1% 96.8% 17% 207%
FAST Fast enal Company $43.47 12,574 12,805 0.2x 7.4% 6.8% 7.0% 7.2% 13.0x 22.9x 15.3% 82.4% 22% 27%
FBHS Fort une Brands Home & Securit $62.85 9,669 10,951 1.4x 8.4% 6.4% 54.5% 12.3% 12.1x 20.1x 20.7% 95.2% 11% 19%
JCI Johnson Cont rols Int ernat ional $42.03 39,429 53,474 2.8x -1.6% 3.1% 8.1% 14.2% 10.7x 14.8x 7.3% 85.8% 7% -6%
MAS Masco Corporat ion $37.00 11,838 14,163 1.8x 0.5% 5.3% 62.8% 13.2% 10.7x 18.3x 27.1% 98.5% 18% 4520%
Me di an 1.8x 2.1% 5.3% 8.1% 12.3% 12.1x 20.1x 20.7% 95.2% 17% 27%

C on stru cti on an d En gi n e e ri n g
FLR Fluor Corporat ion $44.98 6,287 5,937 -0.4x -4.0% 3.2% -4.5% 16.9% 7.0x 16.8x 2.1% 77.1% 7% 9%
JEC Jacobs Engineering Group Inc. $52.66 6,342 6,064 -0.4x 1.1% 4.2% 0.3% 10.0% 8.8x 16.0x 11.7% 83.0% 7% 5%
P WR Quant a Services, Inc. $31.07 4,726 5,045 0.5x 12.8% 6.8% 20.5% 17.4% 7.4x 15.2x 43.8% 80.0% 6% 7%
Me di an -0.4x 1.1% 4.2% 0.3% 16.9% 7.4x 16.0x 11.7% 80.0% 7% 7%

C on stru cti on Mach i n e ry & He avy Tru ck s

CAT Cat erpillar Inc. $105.66 62,243 92,375 5.4x -8.5% 5.1% -25.2% 23.5% 16.7x 24.7x 49.8% 99.7% 3% -1%
P CAR P ACCAR Inc $62.63 22,001 27,521 2.8x 0.8% 8.5% 6.2% 13.5% 14.1x 16.3x 30.0% 89.3% 8% 21%
Me di an 4.1x -3.9% 6.8% -9.5% 18.5% 15.4x 20.5x 39.9% 94.5% 5% 10%

14
S&P 500 Industrials Comp Table (continued)

Val u ati on (NTM)

Las t Mark e t De bt / S al e s Growth EPS Growth EV / % of 52-W e e e k Re tu rn s

Symbol Company Name C l os e C ap EV EBITDA 2011-2016 2017-2019 2011-2016 2017-2019 EBITDA P / E Low Hi gh ROIC ROE

INDUS TRIALS MEDIAN 1.6x 1.6% 4.7% 6.7% 10.9% 11.3x 19.0x 30.7% 96.3% 11% 21%

El e ctri cal C om pon e n ts & Equ i pm e n t

AYI Acuit y Brands, Inc. $164.87 6,939 6,832 -0.2x 12.9% 4.8% 24.1% 8.2% 10.5x 19.4x 0.6% 58.7% 16% 19%
AME AMET EK, Inc. $60.87 14,007 15,851 1.7x 5.1% 5.1% 6.5% 10.7% 14.3x 24.0x 40.6% 99.2% 9% 15%
ET N Eat on Corporat ion plc $77.56 34,693 42,436 2.2x 4.2% 2.8% 0.4% 9.9% 12.0x 16.4x 42.8% 97.8% 6% 13%
EMR Emerson Elect ric Co. $58.92 37,973 37,053 -0.3x -9.7% 7.1% -5.3% 10.8% 10.7x 21.9x 21.6% 91.5% 12% 21%
ROK Rockwell Aut omat ion Inc. $159.28 20,522 19,852 -0.5x -0.4% 4.8% 3.8% 8.6% 14.1x 23.3x 48.6% 96.5% 16% 35%
Me di an -0.2x 4.2% 4.8% 3.8% 9.9% 12.0x 21.9x 40.6% 96.5% 12% 19%

En vi ron m e n tal & Faci l i ti e s S e rvi ce s

RSG Republic Services, Inc. $63.07 21,323 28,962 2.7x 2.8% 3.7% 2.8% 8.9% 10.2x 26.0x 31.5% 98.4% 7% 8%
SRCL St ericycle, Inc. $82.40 7,026 9,854 3.1x 16.3% 2.1% 3.5% 4.6% 10.8x 17.6x 15.2% 76.5% 6% 7%
WM Wast e Management , Inc. $71.84 31,739 40,772 2.2x 0.3% 3.4% 7.1% 7.9% 10.1x 21.9x 18.6% 96.3% 10% 23%
Me di an 2.7x 2.8% 3.4% 3.5% 7.9% 10.2x 21.9x 18.6% 96.3% 7% 8%

In du s tri al C on gl om e rate s
MMM 3M Company $200.67 119,848 129,299 1.0x 0.3% 3.0% 6.7% 7.4% 13.7x 22.0x 22.5% 100.0% 20% 45%
GE General Elect ric Company $27.45 238,375 363,865 5.7x -3.4% 2.2% -7.2% 12.0% 16.4x 15.4x 1.3% 83.2% 3% 11%
HON Honeywell Int ernat ional Inc. $133.25 101,582 108,009 0.7x 1.5% 3.5% 23.6% 7.8% 12.5x 18.6x 26.6% 98.7% 12% 25%
ROP Roper T echnologies, Inc. $227.08 23,169 28,280 3.1x 6.3% 6.2% 8.6% 8.8% 17.2x 24.3x 42.6% 99.6% 7% 12%
Me di an 2.1x 0.9% 3.3% 7.6% 8.3% 15.1x 20.3x 24.5% 99.1% 9% 19%

In du s tri al Mach i n e ry
CMI Cummins Inc. $156.64 26,218 27,007 0.3x -0.6% 4.5% -2.6% 12.6% 9.7x 16.5x 48.7% 95.9% 12% 21%
DOV Dover Corporat ion $82.50 12,843 16,064 2.3x -1.6% 4.7% -5.6% 15.0% 11.6x 20.7x 29.0% 97.7% 7% 15%
FLS Flowserve Corporat ion $48.10 6,283 7,547 2.4x -2.4% 3.5% -7.5% 21.5% 14.0x 26.0x 22.9% 91.6% 6% 7%
FT V Fort ive Corporat ion $63.51 22,012 24,460 1.6x N/A 3.7% N/A 8.7% 15.9x 22.8x 37.2% 98.8% 14% 22%
GWW W.W. Grainger, Inc. $173.58 10,138 12,310 1.6x 4.6% 5.5% 3.3% 8.7% 9.2x 17.0x 2.0% 66.1% 17% 29%
IT W Illinois T ool Works Inc. $140.37 48,491 53,879 1.4x -1.3% 2.9% 12.8% 9.4% 13.9x 21.7x 42.8% 98.3% 16% 43%
IR Ingersoll-Rand P lc $89.35 22,876 25,696 1.3x 1.1% 4.0% 16.7% 11.7% 12.0x 19.3x 51.2% 99.1% 10% 23%
PH P arker-Hannifin Corporat ion $159.26 21,211 26,391 2.3x -1.6% 8.2% 0.7% 14.0% 11.9x 18.6x 60.7% 95.6% 9% 19%
P NR P ent air plc $66.25 12,074 16,365 4.2x 7.2% 3.3% 4.6% 10.2% 16.2x 17.8x 23.1% 96.0% 5% 10%
XYL Xylem Inc. $51.41 9,239 11,356 2.4x -0.2% 4.1% -2.9% 15.2% 12.7x 21.5x 20.9% 93.5% 7% 11%
Me di an 2.0x -0.6% 4.0% 0.7% 12.1% 12.3x 20.0x 33.1% 95.9% 9% 20%

Rai l roads
CSX CSX Corporat ion $53.96 49,788 59,878 1.9x -1.3% 3.3% 2.2% 19.8% 11.3x 22.5x 120.9% 99.5% 10% 15%
KSU Kansas Cit y Sout hern $95.95 10,179 12,933 2.2x 2.2% 6.3% 7.5% 10.8% 10.4x 18.4x 21.4% 95.3% 8% 12%
NSC Norfolk Sout hern Corporat ion $122.33 37,935 47,379 2.1x -2.4% 4.1% 1.1% 11.0% 10.5x 19.0x 55.4% 97.9% 9% 14%
UNP Union P acific Corporat ion $110.57 89,279 103,173 1.4x 0.4% 4.6% 8.4% 11.3% 10.2x 18.9x 35.2% 96.0% 13% 22%
Me di an 2.0x -0.4% 4.4% 4.9% 11.1% 10.5x 19.0x 45.3% 96.9% 9% 14%

Re s e arch & C on s u l ti n g S e rvi ce s

EFX Equifax Inc. $136.43 16,400 19,010 2.0x 10.7% 7.3% 14.2% 11.2% 14.8x 22.0x 23.1% 97.5% 10% 20%
NLSN Nielsen Holdings plc $38.54 13,770 21,931 4.0x 3.4% 4.3% 14.3% 9.9% 10.6x 14.2x 1.6% 68.9% 6% 11%
VRSK Verisk Analyt ics, Inc. $80.55 13,318 15,447 2.0x 10.9% 6.3% 9.3% 9.2% 14.6x 24.6x 6.5% 92.2% 12% 34%
URI Unit ed Rent als, Inc. $111.17 9,395 16,407 2.3x 17.2% 4.0% 33.6% 9.0% 5.5x 11.1x 79.9% 82.8% 10% 36%
Me di an 2.2x 10.8% 5.3% 14.2% 9.6% 12.6x 18.1x 14.8% 87.5% 10% 27%

Mi s ce l l an e ou s
JBHT J.B. Hunt T ransport Services, In $84.54 9,298 10,239 0.9x 7.7% 8.9% 12.5% 16.1% 9.3x 21.1x 11.7% 82.6% 19% 33%
RHI Robert Half Int ernat ional Inc. $45.90 5,837 5,578 -0.4x 6.8% 5.7% 19.5% 9.6% 9.0x 16.9x 33.7% 90.0% 32% 32%
CT AS Cint as Corporat ion $125.16 13,182 14,179 0.8x 5.2% 12.3% 19.5% 9.8% 11.9x 26.2x 37.2% 97.1% 16% 24%
DE Deere & Company $122.79 39,082 71,084 8.2x -3.7% 7.7% -6.8% 16.8% 18.3x 19.1x 60.0% 99.4% 4% 24%
Me di an 0.8x 6.0% 8.3% 16.0% 13.0% 10.6x 20.1x 35.4% 93.6% 17% 28%

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Stock fundamentals

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Outstanding Debt
Conservative capital structure with largely fixed-rate, long-term debt with staggered
maturities.
Debt Maturity Schedule

Capital Structure

Market Cap 93,442

Stock Price $107.67
FD Shares Outstanding 868
Cash 2,687
Total Debt 17,269
Total Net Debt 14,582
Enterprise Value 108,024
Trailing EBITDA (1Q17) 10,313
Net Debt / TTM EBITDA 1.4x

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2017 Targets (Non-GAAP)

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2018-2019 Targets (Non-GAAP)

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Key management Compensation and Stock Ownership
Summary Compensation Table

Stock Ownership

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Management Incentive Plans

Management incentive plans appropriately prioritize ROIC and shareholder value creation.

Annual Incentive Plan

Long-term Incentive Plan

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Analyst Ratings

UPS is very much out of favor with Wall Street, with only 6 Buy recommendations

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