UPS tops quarterly profit estimates on rebounding volumes; shares jump

By Ananta Agarwal and Lisa Baertlein

(Reuters) -United Parcel Service exceeded Wall Street estimates for quarterly profit on Thursday, ahead of the peak holiday season, benefiting from rebounding volumes and effective cost controls, boosting its shares 8.3% in premarket trading.

The company also raised its full-year adjusted operating margin forecast.

UPS has been seeing volume growth in the U.S. since May, following nine quarters of weak demand after pandemic-induced lockdowns ended and inflationary pressures crimped some e-commerce purchasing.

Its third-quarter domestic volumes grew 6.5%.

However, a large portion of the growth has been driven by new e-commerce entrants, identified by industry experts and shoppers as bargain retailers Shein and Temu.

This has exacerbated the shift from premium air services to less expensive ground services and then to the even more low-profit SurePost services, where UPS picks up packages and hands about 60% of them off to the U.S. Postal Service for final delivery.

The company had slashed its full-year adjusted operating margin target to 9.4% in July, despite an uptick in U.S. volumes because of the shift. It now expects a full-year operating margin of 9.6%.

"UPS seems to be controlling what it can at this late stage in the cycle," said Jonathan Chappell, equity analyst at Evercore ISI, adding that the improved margin forecast points to cost cuts outweighing lingering macro headwinds.

The company's third-quarter adjusted operating margin of 8.9% was above last year's 7.7%.

The parcel delivery firm reported an adjusted profit per share of $1.76, above analysts' average estimate of $1.63 per share.

Consolidated revenue of $22.25 billion was also above analysts' average estimate of $22.14 billion.

"Posting a solid, nearly all-around beat after two years of misses and lowers" will confirm the view that "fundamentals and stock price have bottomed," Chappell said.

UPS has been onboarding the United States Postal Service air cargo business, which it took over from rival FedEx (NYSE:FDX ), after its contract expired on September 29.



UPS expects the five-year USPS contract to be profitable in its first year.

"They're headed in the right direction," Faisal Hersi, industrials senior analyst for Edward Jones, said.

Source: Investing.com