Parcel delivery volumes have skyrocketed over the past year as the COVID-19 pandemic accelerated the adoption of e-commerce, but that boom could slow as many parts of the world return to normal.
UPS (NYSE: UPS) reported second quarter results Tuesday morning, and investors brushed aside better-than-expected results and instead focused on cautious comments on the company’s core business domestically.
By 12:20 p.m. EDT, UPS stock had fallen 8%.
The surge in the pandemic could ease
Revenue rose 14.5% to $ 23.4 billion in the second quarter, slightly more than analysts’ forecast of $ 23.2 billion. This resulted in adjusted earnings per share of $ 3.06, which also beat the consensus estimate of $ 2.81 per share in adjusted earnings.
However, the domestic average daily parcel volume fell, leading to fears that the pandemic-induced tailwind could ease. The volume growth in the smaller international segment could not offset the domestic weakness.
|segment||Average daily parcel volume||YOY change|
Most e-commerce-related shipments are shipped using UPS Ground, which has reduced the average daily package volume by 4% to 16.86 million. UPS Ground shipments in the United States represented 70% of total consolidated volume for the quarter.
To partially offset the decline in volume, UPS was able to increase prices during the pandemic due to strong shipping demand. Average sales per item in the United States rose 13% to $ 10.97, while that metric rose 16% internationally to $ 19.32. On a consolidated basis, the average sales per unit were $ 12.26.
The company appointed a new CEO, Carol Tomé, last summer when the crisis was in full swing. Under Tomé’s leadership, UPS implemented a “better, not bigger” strategy that focuses on improving the quality of sales, increasing profitability and increasing productivity through disciplined investments.
Management warned that domestic volume could be weak in the second half of the year as consumers return to shopping in stores. The holiday season is a critical time for parcel senders.
UPS has not provided detailed financial projections of sales or earnings due to ongoing macroeconomic uncertainties and instead offers investors insight into its capital allocation plans.
The company is targeting a consolidated operating margin of approximately 12.7% this year with a goal of achieving a return on invested capital (ROIC) of 28%. Capital expenditures are projected to be around $ 4 billion in 2021, and UPS has already paid off $ 2.55 billion in long-term debt.
Looking to the future, UPS outlined its long-term goals for 2023 at its Investor & Analyst Day last month. The company hopes to achieve an adjusted operating margin of 13.7% this year on a ROIC target of 29%.
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