UPS managed to “crush elevated expectations on surge in volume,” JPMorgan Chase & Co. analyst Brian Ossenbeck said in a note to clients. “Parcel carriers have a unique opportunity to increase price given demand has never been higher for delivery services.”
UPS and FedEx Corp. have been in overdrive to handle soaring residential deliveries while rushing personal protective equipment to hospitals since the novel coronavirus swept the world this year. Both companies applied peak-season-style surcharges on large customers as demand jumped and new expenses arose to protect employees and keep sorting hubs free of the virus.
UPS soared 10% to $136.33 at 9:40 a.m. in New York after climbing as high as $138.79, an intraday record. UPS advanced 5.7% this year through Wednesday, while the S&P 500 rose less than 1%.
The courier’s average U.S. volume climbed 23% to 21.1 million packages a day in the second quarter. That was driven mostly by a 65% jump in residential deliveries.
The gains were spurred by “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,” CEO Carol Tomé, who took the reins June 1, said in the statement.
Still, the increase in home deliveries weighed on domestic adjusted profit margin, which fell to 9.3% from 11% a year earlier. That’s because residential service has fewer packages per stop than commercial and requires drivers to travel more between locations.
“Moving forward we are focusing on efficiency and revenue quality to improve U.S. operating margins longer term,” said Brian Newman, UPS’s chief financial officer.
UPS eschewed providing guidance on revenue or earnings because of the uncertainty surrounding the timing and pace of economic recovery as businesses begin to reopen.
Tomé inherited a company that’s in good shape to handle the demand surge after her predecessor, David Abney, stepped up investment in the last couple of years to build out automated sorting hubs, purchase new aircraft and develop technology to route packages more efficiently. Abney will step down as executive chairman Sept. 30.
UPS also fared well in the highly profitable international segment, with sales increasing 5.7% from a year ago to $3.71 billion and operating profit jumping 27% to $842 million. Revenue was driven by strong outbound demand from Asia and an increase in Europe’s cross-border e-commerce, UPS said.
FedEx has also gotten a boost from the pandemic-related demand and saw revenue soar 20% at its U.S. ground delivery unit during the fiscal quarter ending May 31. In early trading, FedEx’s shares rose 4.1% to $176.50 amid investor optimism that demand has only accelerated since May.