Categories Analysis, Industrials

E-commerce boom, vaccine delivery will keep UPS busy in COVID era

Signed agreement to sell UPS Freight to TFI International for about $800 million, as part of the efforts to streamline the business

The passenger transportation industry slipped to an all-time low when traffic came to a grinding halt soon after the coronavirus outbreak, but it was almost business as usual for freight movers like United Parcel Service, Inc. (NYSE: UPS). While every industry was affected by the virus-induced disruption at some point in time, the large-scale distribution of COVID vaccine and online shopping boom helped the company stay unaffected.

Read management/analysts’ comments on UPS’ Q4 results

After falling to a multi-year low more than a year ago, when Wall Street was battered by the pandemic, UPS’ shares bounced back pretty quickly and gained about 85% since then. Though the recent rally is good news for stakeholders, the stock looks expensive from an investment point of view. But the uptrend will likely continue in the coming weeks, making UPS an attractive bet. That said, the stock is not immune to the uncertainty shrouding the broad market.

Blessing in Disguise

UPS has been thriving on the spike in parcel delivery volumes after the shutdown left retail outlets closed and set off an e-commerce boom. While experts are bullish about the new shopping trend, there are concerns about its long-term sustainability. But, if the aggressive investments in logistics and healthcare-related facilities like low-temperature freezers are any indication, the management is determined to tap the new opportunities.

The company, which has been operating in the healthcare logistics field for more than a decade, was well-prepared to take up distribution when the vaccine rollout started. After the highly successful initial phase, UPS will continue to be a preferred distribution partner for vaccine developers like Pfizer (PFE) and Moderna (MRNA).

UPS Q4 2020 earnings infographic

Record Revenues

In the final months of fiscal 2020, both the domestic and international segments registered double-digit growth, driving total revenues up 21% to about $25 billion. It was far above the consensus estimate. Consequently, adjusted earnings grew by a fourth to $2.66 per share and surpassed analysts’ forecast. The bottom-line also benefited from cost-reduction, achieved through disciplined operation and the use of effective tools.

From a customer-first perspective, speed and enabling capabilities are very important. Our goal is to provide the best digital experience powered by our smart global logistics network and we’re targeting our solutions to high-yielding sectors like SMBs, among others. We’ve moved the needle on speed. For the year, weekend ground volume was, up 93.9% over last year. And SMB volume on our fastest ground ever lanes grew by 40% in the fourth quarter since we improved these lanes.

Carol Tome, chief executive officer of UPS

Margin Preservation

The company recently clinched a deal to sell UPS Freight to Canada-based TFI International for about $800 million, a move aimed at easing the strain on margins since that unit is capital-intensive and generates low returns. The management also aims to slash operating expenses by $500 million through various measures.

After pandemic year, what lies ahead for the retail industry in 2021?

In a similar pattern, earnings of FedEx (FDX) more than doubled to $4.83 per share in the November-quarter — the company’s latest reporting period. Broad-based gains across business segments translated into a 19% revenue growth.

Stock Performance

Currently hovering near its recent peak, UPS’ stock traded slightly higher Friday afternoon. It has maintained strong momentum over the past several months, despite occasional volatility.

Looking for more insights?

Read the full conference call transcript here. It’s free!

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