UPS beats expectations as profits rise despite fewer deliveries

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UPS

As the Q3 earnings season continues to unfold, tech stocks are still the main focus for investors. Around 81% of all S&P 500 companies that have reported their results so far have managed to beat analyst expectations. Because of this, optimism is becoming the norm compared to a couple of months ago, when investors were largely nervous. One stock that did surprisingly well on Tuesday was United Parcel Service (NYSE: UPS), with the parcel delivery company jumping after its surprising earnings beat.

Despite the fact that parcel deliveries actually went down a bit this quarter, revenue and net income shot up significantly. Revenue rose by 9.2% to $23.2 billion, slightly higher than the $22.6 billion expected by analysts. Net income also came in at $2.9 billion, a lot higher than last year’s $2.4 billion.

It’s surprisingly good news for UPS, especially since we still haven’t hit the holiday season just yet. The company’s management has already lifted its Q4 targets as well as its full-year guidance. While Covid-19 cases are stabilizing around the world, more people than ever are continuing to shop online, something which is helping drive up demand for parcel delivery businesses around the world.

UPS is already hiring an extra 100,000 seasonal workers for this upcoming Holiday period. Similar companies, like FedEx, have had trouble with labor constraints during the year. Just recently, the company had to cut its earnings forecasts due to these labor issues.

In contrast, almost three-quarters of UPS’ American employees are unionized, and their negotiated salaries are locked for a couple more years. This gives management a bit more stability when it comes to forecasting.

We have a good idea of what the compensation is for those employees and we manage that,” said UPS CEO Carol Tome in an official statement, adding the company will curtail Thanksgiving shipments to prepare for the holidays. “These actions will minimize chaos costs and enable high service levels.”

Additionally, UPS said that it’s getting more business from small-to-medium size shippers. In contrast, larger shippers, like Amazon, are now representing a smaller portion of the overall shipping volume compared to last year. For some analysts, that’s a good sign, as it means demand has become more diversified than just coming from one or two big shippers.

Shares of UPS were up around 12.5% in response to the news, one of the biggest one-day jumps for the company. Since the year began, UPS stock is up over 33.1% and currently trades at an all-time high since when it first was founded in 1999. Around 18 analysts on Wall Street are currently bullish on UPS, whereas ten are neutral, and three are bearish.

 

United Parcel Service Company Profile

As the world’s largest parcel delivery company, UPS manages a massive fleet of more than 500 planes and 100,000 vehicles, along with many hundreds of sorting facilities, to deliver an average of about 22 million packages per day to residences and businesses across the globe. UPS’ domestic U.S. package operations generate 61% of total revenue while international package makes up 20%. Less-than-truckload shipping, air and ocean freight forwarding, truckload brokerage, and contract logistics make up the remaining 19%. – Warrior Trading News

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