UPS Rides E-commerce Surge to 21% Jump in Package Volumes
July 30 2020 - 10:43AM
Dow Jones News
By Paul Ziobro
United Parcel Service Inc. rode a pandemic-fueled surge in
e-commerce to higher profits and a 13% jump in revenue during the
June quarter, and its new boss said the delivery giant has room to
raise rates on retailers relying on its network.
UPS said its average daily shipping volume rose 21% in the
quarter, faster than the company has ever recorded, with a 65%
increase in shipments to homes.
The magnitude of the jump was a surprise to UPS, which had been
planning for demand to pull back from the high levels in the early
days of the pandemic.
"At the beginning of the second quarter, we assumed demand would
slow," Chief Executive Carol Tomé said on Thursday's earnings call.
"Instead, we saw just the opposite."
The results boosted shares more than 12% in Thursday's trading
to records.
UPS and rival FedEx Corp. are being inundated with millions of
extra daily packages after many retail stores were temporarily
closed, pushing people to shop online for everything from toilet
paper to pet food. Even as most stores have reopened, some shoppers
remain reluctant to head to stores as coronavirus cases rise in
parts of the U.S.
UPS has benefited from handling packages for Amazon.com Inc.
after FedEx cut ties with the e-commerce giant last year.
UPS said it also had an increase in Covid-19 related health-care
shipments and an increase in outbound packages from Asia.
The sudden growth comes at a cost, though, as the carriers incur
greater expenses from more miles driven and fewer packages
delivered per stop as they deliver more to homes instead of
businesses.
Despite the surge of packages in the U.S., UPS's operating
profit fell slightly in its main domestic segment. UPS's average
revenue per package in the U.S. dropped 5% from a year ago, as
shipments using one of UPS's lower-priced services nearly
doubled.
The company expects its margin to fall further during the second
half of the year, due to higher costs to handle the demand as well
as some projects to speed shipping times on certain routes. Such
improvements, as well as continuing to expand weekend operations,
should give UPS enough bandwidth to handle what is expected to be a
challenging holiday season.
"We have capacity to handle the peak volume that we are
anticipating this year," Ms. Tomé said.
Both UPS and FedEx are trying to offset some of the costs with
new surcharges on large packages and on some of their lower-priced
shipping services. The two companies have also started to impose
higher rates on some of their shippers whose volumes have changed
significantly in recent months.
Investors have been looking for signs that the carriers would
start to wield their greater pricing power and extract to see
higher returns from billions of dollars of investment in recent
years on upgrading their networks with added capacity and more
automation. The pandemic has sped up the timeline under which that
was expected to occur amid the significant shift to online shopping
in just a matter of weeks.
Ms. Tomé, in her first remarks to investors since becoming CEO
in June, said the company has room to raise shipping rates on large
retailers, who she said can pass them along to consumers by raising
prices.
"While retailers may squawk at price increases that come their
way, large retailers have a way to spread that across and nobody
knows," said Ms. Tomé, who previously served as chief financial
officer at Home Depot Inc.
Ms. Tomé also said several times Thursday that UPS will focus on
becoming "better, not bigger." That includes more carefully
scrutinizing plans to add capacity to its network. She said UPS
recently turned down the chance to buy additional aircraft because
it would create more capacity that it would have to fill.
"What we have done in the past is built capacity or bought
capacity in the hopes that demand would follow, and we would take
demand at any cost or any price," she said.
For the period, UPS reported a profit of $1.8 billion, or $2.03
a share, up from $1.7 billion, or $1.94 a share, a year earlier.
Excluding some restructuring charges, UPS said adjusted earnings
were $2.13 a share. Revenue hit $20.3 billion. Analysts polled by
FactSet expected UPS to post earnings of $1.07 a share, on revenue
of $17.5 billion.
Write to Paul Ziobro at Paul.Ziobro@wsj.com
(END) Dow Jones Newswires
July 30, 2020 10:28 ET (14:28 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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