UPS returns to profit, revenue growth ahead of crucial holidays; shares jump

Reuters

UPS returns to profit, revenue growth ahead of crucial holidays; shares jump

2024 10월 24 일, 오전 10:22 GMT

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Adds CFO comment in paragraph 3 and CEO comment in paragraphs 9 -10; adds bullet points

UPS raises full-year adjusted operating margin forecast

Volume growth driven by China-linked e-retailers and Amazon

Retail customers temper volume expectations for holiday season

Adjusted third-quarter profit of $1.76 per share tops Wall St estimates

Shares gain more than 5%

By Ananta Agarwal, Lisa Baertlein

Oct 24 (Reuters) -United Parcel Service UPS.N reported better-than-expected quarterly profit and revenue onThursday, ahead of the crucialpeak holiday season, boosted byrebounding volume and effective cost controls and shares soared as much as 10% in early trading.

The world's biggest package delivery firmalso raised its full-year adjusted operating margin forecast despite customers' ongoing switch to slower, cheaper deliveries in the long retrenchment that followed the early pandemic's e-commerce boom.

"We returned to revenue and profit growth the first time in two years," CFO Brian Dykes said on a conference call with analysts.

Shares hit a high of $145.01 early in the trading session before retreating to $138.25, up 5%, by mid-morning.

UPS reported an adjusted third-quarter profit of $1.76 per share, a 12% year on-year rise that topped analysts' average estimate of $1.63 per share. Revenue was up almost 6% to $22.2 billion.

During the third quarter, volumes in its dominant U.S. business grew at the highest rate in more than three years, Dykes said.

However, a large portion of the growth has been driven by China-linked,bargain e-retailersShein and Temu PDD.O.

That business unexpectedly swamped the UPS network in the second quarter, exacerbatingthe 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.

Amazon.com AMZN.O, which is the largest customer at UPS, also contributed to the trend, and accounted for 100% of the reduction in air volume in the third quarter, CEO Carol Tome said.

Tome added that retail customers have tempered volume expectations for the year-end holiday season. That's because Thanksgiving falls late in November this year, resulting in fewer shopping and delivery days. That could mean more in-store vs. online purchasing this year, she said.

UPS now expects a full-year operating margin of 9.6%. It had slashed that forecast to 9.4% in July.

"UPS seems to be controlling what it can," said Jonathan Chappell, equity analyst at Evercore ISI.

"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 also hasbeen onboarding the United States Postal Service air cargo business, which it took over from rival FedEx FDX.N, after its contract expired on September 29.

UPS has said it expectsthe 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.

Reporting by Ananta Agarwal in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Pooja Desai and Nick Zieminski

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