UPS Stock Jumps as Quarterly Profit and Volume Growth Exceed Expectations!
UPS Exceeds Profit Expectations, Sets Positive Outlook Ahead of Holiday Season
United Parcel Service (UPS) has delivered better-than-expected quarterly profit results, signaling a strong performance ahead of the peak holiday season. The company benefited from rebounding package volumes and effective cost management, leading to an 8.3% increase in its shares during premarket trading.
Revenue Growth and Profit Surge
UPS reported an adjusted profit of $1.76 per share, surpassing the $1.63 per share anticipated by analysts. The company’s consolidated revenue reached $22.25 billion, exceeding the average analyst estimate of $22.14 billion. This is a significant achievement after eight consecutive quarters of missing expectations, with UPS finally returning to revenue and profit growth.
Carol Tomé, the Chief Executive Officer of UPS, expressed optimism about the company’s progress. “After a challenging 18-month period, our company returned to revenue and profit growth,” she stated. As the company gears up for the busy holiday season, it is well-positioned to deliver strong results once again.
U.S. Volume Rebound and E-Commerce Shift
Since May, UPS has experienced a noticeable uptick in U.S. domestic volumes, increasing by 6.5% in the third quarter. This marks a positive shift after nine quarters of weak demand, largely driven by the end of pandemic-related lockdowns and the inflationary pressures that dampened e-commerce purchases.
A significant portion of this volume growth comes from new e-commerce players like Shein and Temu. These budget-friendly retailers have shifted customer preferences from premium air services to less expensive ground services. UPS’s lower-margin SurePost services, which involve handing off about 60% of packages to the U.S. Postal Service for final delivery, also contributed to this shift.
While the rise in low-cost services has affected UPS’s premium offerings, the company has remained agile in managing costs. UPS expects its full-year adjusted operating margin to be 9.6%, an improvement from its previous forecast of 9.4%.
Effective Cost Management and Profit Margin Boost
Despite challenges posed by the shift toward less profitable services, UPS has implemented successful cost control measures, leading to an 8.9% adjusted operating margin in the third quarter. This is an improvement over the 7.7% margin from the same period last year. Jonathan Chappell, an equity analyst at Evercore ISI, noted that UPS is effectively managing the factors within its control. He pointed out that the improved margin forecast shows that cost-cutting measures are compensating for broader economic challenges.
The company’s ability to adapt in the face of these headwinds has not gone unnoticed by investors. UPS’s stock surged 6.1% in early Thursday trading, bringing it to its highest price since July. This rally marks the largest post-earnings gain since February 2022, when the stock soared 14.1%.
U.S. Postal Service Contract: A New Growth Opportunity
UPS has further strengthened its position by securing a five-year contract with the United States Postal Service (USPS) for air cargo services. This contract, previously held by FedEx, was awarded to UPS after the rival company’s agreement with USPS expired in late September. UPS expects the contract to be profitable from its first year of operation.
According to Faisal Hersi, an industrials senior analyst at Edward Jones, UPS is moving in the right direction with this new partnership. The USPS deal is seen as a growth driver that could enhance UPS’s long-term profitability.
Financial Overview: Revenue Breakdown
In its third-quarter earnings report, UPS highlighted growth across its key business segments. U.S. domestic package revenue grew by 5.8% to $14.45 billion, surpassing expectations of $14.27 billion. The increase in average daily volume by 6.5%, which rose to 18.4 million packages, was driven by an 8.9% rise in ground deliveries. This growth offset declines in premium services, including a 4.9% drop in Next Day Air deliveries and an 8.3% drop in deferred deliveries.
UPS’s international package revenue also saw an uptick, rising by 3.4% to $4.41 billion, slightly above analyst estimates of $4.40 billion. While international volumes decreased by 0.6%, revenue per package rose by 2.5%, helping to bolster the segment’s overall performance.
The company’s supply chain solutions business reported an 8% increase in revenue, reaching $3.38 billion. Although this figure came in just below the FactSet consensus of $3.39 billion, it still reflects robust demand for UPS’s logistics services.
Looking Forward: Adjusted Revenue Outlook
UPS adjusted its full-year revenue forecast, reducing it to $91.1 billion from the previous projection of $93 billion. The revision accounts for the sale of the company’s Coyote Logistics business, which was completed during the third quarter. Despite the adjustment, UPS remains on track to achieve solid financial performance for the remainder of the year.
Looking ahead, the company is optimistic about its ability to maintain growth, particularly as it enters the peak holiday season. With a strong foundation of volume growth, cost controls, and new business opportunities like the USPS contract, UPS is well-positioned to meet customer demands and deliver profitable results.
Here’s the same data presented in table format for clarity:-
| Segment | Metric | 3Q 2024 | Non-GAAP Adjusted 3Q 2024 | 3Q 2023 | Non-GAAP Adjusted 3Q 2023 |
|---|---|---|---|---|---|
| U.S. Domestic Segment | Revenue | $14,450 M | – | $13,660 M | – |
| Operating Profit | $898 M | $974 M | $571 M | $665 M | |
| Operating Margin | 6.2% | 6.7% | – | – | |
| Key Driver | 6.5% increase in average daily volume | – | – | – | |
| International Segment | Revenue | $4,411 M | – | $4,267 M | – |
| Operating Profit | $798 M | $792 M | $630 M | $675 M | |
| Operating Margin | 18.1% | 18.0% | – | – | |
| Key Driver | 2.5% increase in revenue per piece | – | – | – | |
| Supply Chain Solutions | Revenue | $3,384 M | – | $3,134 M | – |
| Operating Profit | $289 M | $217 M | $142 M | $275 M | |
| Operating Margin | – | – | – | – |
This article presents UPS’s third-quarter earnings and business outlook, highlighting key financial data, growth drivers, and strategic initiatives without referencing prohibited sources.
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