UPS Q2 earnings top expectations

Amid the ongoing COVID-19 pandemic, Atlanta-based global freight transportation and logistics services provider UPS posted solid second quarter earnings results today.

Quarterly revenue, at $20.5 billion, increased 13.4 annually, and adjusted earnings per share, at $2.13, was up 8.7% compared to a year ago far outpaced Wall Street expectations, at $1.07. Net income, at $1.8 billion, was up 4.9% annually, with UPS noting it included material headwinds stemming from COVID-19 and higher self-insurance accruals, among other factors.

“Our results were better than we expected, driven in part by the changes in demand that emerged from the pandemic, including a surge in residential volume, COVID-19 related healthcare shipments and strong outbound demand from Asia,” said Carol Tomé, UPS chief executive officer, in a statement.  “UPSers are keeping the world moving during this time of need and I want to thank our team for their hard work and outstanding efforts to serve our customers, our communities and each other.”

Individual segment results for Q2:

• U.S. domestic package revenue headed up 17.3%, to $13 billion, with operating profit, at $1.182 billion, down from $1.208 billion a year ago. Average daily volume rose 22.8%, to 21.1 million daily packages, with business-to-consumer shipments up 65.2, and UPS attributing that to a surge in demand for residential deliveries (as a result of COVID-19), and operating margin came in at 9.0% and adjusted operating margin, at 9.3%;
• International Package revenue, at $3.705 billion, was up 5.7%, with operating profit coming in at $842 million on an adjusted basis, for a 21% annual gain, with average daily volume up 9.8%, to 3.309 million packages per day, and total revenue per package down 3.9% to $16.73; and
• Supply Chain & Freight revenue, at $3.68 billion, rose 8.5%, with UPS pointing to elevated air freight forwarding demand coming out of Asia, which was partially offset by weaker demand early in the second quarter for its less-than-truckload and truckload brokerage units

UPS officials said that the company will not be providing guidance, for revenue and diluted earnings per share, “due to the timing and pace of the economic recovery,” adding that it “is unable to predict the extent of the business impact or the duration of the coronavirus pandemic, or reasonably estimate its operating performance in future quarters.”

In a research note, Robert W. Baird & Co. analyst Ben Hartford wrote that UPS’ domestic results were meaningfully improved, for various reasons.

“We suspect a combination of factors drove the improvement (including stabilizing operations after March 2020’s meaningful market shift toward B2C, utilization of surcharges),” he wrote. “But the pace and magnitude of Domestic’s EBIT margin improvement and the prospect of sustained parcel pricing support moving forward, coupled with leadership from new CEO Carol Tomé, create a new set of catalysts for UPS simply beyond simply beating a lowered bar of expectations.”

Jerry Hempstead, president of Hempstead Consulting, said that all the UPS numbers were impressive.

“The biggest news was in SurePost which almost doubled its volume [up 96.6% and accounting for 53% of U.S. Domestic volume growth],” he said. “It is interesting as FedEx appears to be distancing itself from SmartPost since beginning to tinker with it earlier in the year. I guess the only cloud on the horizon is what do they do next year when they have to show year over year growth. I suspect the focus will be on yield improvement or as they said on the call revenue quality.”