United Parcel Service saw higher prices and strong demand for shipping driven by e-commerce and generated profits that exceeded analysts’ expectations.
UPS and competitor FedEx Corp. are struggling with huge volumes since last year’s pandemic. Both aggressively raised prices to offset the cost of shipping more home furnishings, which were growing faster than more lucrative commercial packages.
Higher prices and a shift to more profitable shipments resulted in a 13% increase in total UPS revenues per package, offsetting a 2% drop in average volume.
“We used to think that all packages are the same. We don’t think so anymore, ”Chief Executive Officer Carol Tome said during a conference call with analysts on Tuesday. “We control the volume flowing into our network because we are focused on the quality of the revenue.”
UPS shares rose 6.7% to $ 217.56 as of 10:11 am in New York – after earlier they rose 8% to a record high. Shares are up 21% this year to Monday, just under 22% for the Standard & Poor’s 500.
The courier has focused on increasing profits under Tom, who took over as CEO last year. Tohme laid out a “better, not more” strategy to curb UPS’s past tendency to consume whatever volume it could, no matter how well it paid. It also sold the $ 800 million low-margin trucking business in April, and in September announced an agreement to buy Roadie, a same-day delivery startup.
Packages from UPS’s largest customers are on a downward trend, according to Tohme, as the company controls the volume flowing into the network. Including Amazon.com Inc., UPS’s largest customer. Tome said that during the first nine months of this year, Amazon’s share of shipments as a percentage of total volume was the same as in 2019.
Adjusted earnings were $ 2.71 a share in the third quarter, up from $ 2.28 a year earlier, the Atlanta-based courier said in a statement on Tuesday. Analysts had forecast $ 2.54. Revenue rose 9.2% to $ 23.2 billion in the third quarter, while analysts expected $ 22.6 billion.
“UPS is expanding its high-margin businesses such as healthcare, pharmaceuticals and medical devices while reducing its reliance on lower-margin B2C businesses,” Cowen analyst Helan Becker said in a note to customers, referring to the business-to-consumer segment. … …
The company has handled the labor shortage better than its main competitor because, unlike FedEx, it has unions and pays the highest wages in the industry. Compensations and benefits for the quarter were up just 0.6% year-over-year.
“I really like our ability to handle the labor cost inflation that many companies are facing today,” Tome told analysts.
However, UPS costs for purchased shipments rose 18% as the courier increasingly turned to third-party companies to ship packages. Fuel prices jumped 54% on rising gasoline prices.
On Tuesday, the company raised its operating margin forecast to 13% for 2021 from its previous target of 12.7%. He also increased capital plans for the year from $ 4 billion to $ 4.2 billion.