News / UPS 'bullish' results fail to impress markets fearing end to e-commerce boom

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UPS tabled gains across all segments in its second-quarter results, but financial markets were not impressed, sending the integrator’s shares down 8.7%.

The market reaction was in striking contrast with the mood of the UPS top brass, who were upbeat about the results and bullish on the outlook.

Results across all segments were better than anticipated, said CEO Carol Tomé, adding that the company was “winning in the fastest-growing parts of the market” and driving “sustainable revenue per piece growth”.

She reiterated the drive to focus more on value than volume, under the “better not bigger” moniker, stressing that UPS was “no longer focused solely on volume growth”.

She pointed to SMB, B2B, healthcare and international traffic as the main drivers of the company’s growth, and primary targets for expansion.

The balance sheet for the second quarter shows consolidated revenue of $23.4bn, up 14.5% year on year, while consolidated operating profit surged 47.3% to $3.3bn.

In the US domestic market, UPS reported a 10.2% rise in revenue to $14.4bn, driven by a 13.4% increase in revenue per piece, and an operating margin of 10.9%. Revenue quality improved from a better mix of business, with a greater focus on SMB customers which tend to pay full rates. Their share of revenues climbed from 20% a year ago to 27%.

International revenue rose 30% to $4.81bn, led by Europe, and operating margin reached 24.6%. The Supply Chain Solutions segment showed revenue up 14.3% to $4.2bn, with the operating margin at 12.1%

UPS’s cash from operations in the first six months of the year stood at $8.5bn, a 42.2% gain over the first half of 2020. In addition, the divestiture of UPS Freight at the end of April (described by UPS management as a “capital-intensive, low-returning part of our business”) resulted in a $2.1bn drop in pension and post-retirement liabilities for the company.

Ms Tomé emphasised the opportunities for further growth in all segments. In the US, she pointed to the expansion of its Saturday service, which is aiming to reach 90% of the population by the end of October. Elsewhere, she sees “tremendous potential around the world”, citing a limited footprint that offers scope for expansion in many markets.

As for the economic framework, CFO Brian Newman said: “We expect market conditions to remain favourable.”

For the second half of the year, management projects revenue growth in the neighbourhood of 5.4%, with the operating margin gaining about 12% year on year. For the full year, the operating margin should be up about 12.7%, Mr Newman said.

However, market analysts were less bullish on the near future for UPS and focused more on its report that average daily package volume in the US dropped 2.9% in the second quarter from a year ago, taking this as an indication that the boom in online shopping is losing steam. One research analyst wrote that “declining average daily volume and higher-than-expected unit costs are likely weighing on investor sentiment, with some reading the result as an indication that the pandemic-driven demand trend is slowing”.

The market responded swiftly, sending UPS shares down 8.7%, a drastic reversal from their 25% gain this year up to the earnings release.