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Home / Business / UPS has been hardest hit since 1999 in connection with the virus-induced delivery boom

UPS has been hardest hit since 1999 in connection with the virus-induced delivery boom



(Bloomberg) – United Parcel Service Inc. climbed the most in more than 20 years, as the courier’s results slightly exceeded Wall Street’s expectations for pandemic-driven demand for e-commerce supplies, medical devices and goods from Asia.

Revenue jumped 13% to $ 20.5 billion in the second quarter, beating analysts’ top forecasts. Adjusted earnings were twice the average of Bloomberg’s estimates, and new CEO Carol Tomé signaled her focus on profitability by promising that UPS would be “better, not bigger,” as the shift toward home delivery risks cutting margins.

The increase in package volumes has helped UPS “exceed high expectations,” said JPMorgan Chase & Co. analyst. Brian Ossenbeck in a note to clients on Thursday. “Parcel carriers have a unique opportunity to increase the price, because the demand for delivery services has never been higher.”

Courier and competitor FedEx Corp. Atlanta-based people are in turmoil this year as the new coronavirus has traveled the world this year, managing rapidly growing home supplies while delivering personal protective equipment to hospitals. Both companies applied surcharges to high demand during the peak season, when demand jumped out, and new costs were incurred to protect employees and prevent virus-free sorting of centers.

UPS rose 14% to a record $ 141.46 at the end of the year in New York City, the largest daily gain since the company’s first trading day in November 1999. This year, the stock moved 21% ahead of the year, while the S&P index 500 increased by less than 1%.

“Unprecedented demand”

Adjusted earnings climbed to $ 2.13 per share in the second quarter, the company said in a statement compared to analysts’ average estimates of $ 1.07.

The average volume of UPS in the US increased by 23% per day to 21.1 million packages, which was mainly due to a 65% jump in US housing supplies.

“At the beginning of the second quarter, we assumed that demand would slow down. Instead, we saw the exact opposite, “said Tomé, who took the reins on June 1.

“Due to the ongoing coverage related to Covid, the closure of retail stores and changes in consumer spending in the US supported by the economic stimulus, we have seen unprecedented demand and record high volume levels,” she said during a conference call with analysts.

What Bloomberg Intelligence says

There do not appear to be any sacred cows at UPS under the new leadership of CEO Carol Tom as it seeks to increase the efficiency of the global network and improve customer service and shareholder return. We believe that this will lead to a leaner, more profitable network in the long run.

Lee Klaskow and Adam Roszkowski, transport analysts

Click here to read the survey.

However, the increase in domestic supplies still affected the adjusted domestic profit margin, which fell to 9.3% from 11% in the previous year. This is because the residential service has fewer packages at one stop than the commercial service and requires drivers to travel more between places.

The volume of business-to-business packages fell by 22% this quarter, but is recovering. In July, these deliveries fell by about 9%, the company said.

“We focus on efficiency and revenue quality to improve longer-term operating margins in the United States,” said Chief Financial Officer Brian Newman.

UPS refused to provide guidance on revenues or revenues due to uncertainty regarding the timing and pace of economic recovery as businesses begin to reopen.

However, Newman warned that revenue growth would slow in the second half of the year. US domestic profit margins are likely to be lower than in the first half of the year due to increased spending on workers’ wages and benefits and one-off gains a year earlier, he said. UPS hired 39,000 people in the second quarter to deal with the sharp rise in demand.

UPS performed well in the high-yield international segment, with revenue up 5.7% to $ 3.71 billion in the second quarter and operating profit up 27% to $ 842 million. Revenues were driven by strong outbound demand from Asia and an increase in European cross-border e-commerce.

FedEx also gained support in response to the pandemic demand and saw a 20% increase in sales of its ground delivery in the U.S. during the fiscal quarter ending May 31st. FedEx rose 1.9% to $ 172.71.

Objectives of the Director – General

Tom inherited a company that is able to cope with the sharp rise in demand after its predecessor, David Abney, resisted skepticism on Wall Street to intensify investment in recent years. As part of Abney’s spending plan, UPS expanded automatic sorting hubs, purchased new aircraft such as Boeing Co. 747, and has developed technology for more efficient package routing.

Abney will step down as executive chairman on September 30. Tom made it clear that changes are coming with a thorough overview of how the company does business.

In one example, it stated that UPS has a legacy of excessive engineering in areas such as the 500 different products it offers to customers. These can be broken back and simplified, she said. In the past, UPS increased capacity and then looked for volume to fill it, which often hurts the price. Tomé said she refused the opportunity to buy more 747 nozzles, while Boeing stopped producing bumpy planes in 2022.

Instead, UPS is accelerating a $ 750 million investment this year to accelerate transit times. Tomé is also expanding its weekend deliveries, which improves customer service, Tomé said. And this can lead to reduced spending in other areas.

“We will focus on laser value creation for our shareholders in order to increase the rate of return on the capital we invest,” she said. “It’s all about getting better, not bigger.”

(Updates the shares in the fifth paragraph.)

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