Moody’s downgrades UPS rating to A2 from A1 on concerns about high investment and spending

Moody’s Investors Service downgraded United Parcel Service Inc.’s
credit rating to A2 from A1 on Tuesday, and said it does not expect the parcel delivery service to strengthen its balance sheet in the midst of heavy investment and pension funding. Annual free cash flow is expected to be pressured through 2020 because of higher capex spending that will offer little opportunity for the company to fund pension contributions, not to mention debt maturities. The outlook remains negative, meaning it could downgrade the credit again in the medium term. “The negative outlook reflects what we believe will remain a challenging operating environment and the compounding effect of prospective material pension funding needs that will render the company reliant upon the debt capital markets, even if share repurchases are further tempered,” Moody’s Senior Vice President Jonathan Root said in a statement. UPS shares have gained 20% in 2019, while the S&P 500
has gained 17%.

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