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Oct 22, 2019

UPS expands profit margins in new boost to CEO's investment plan

UPS Beats on 3Q Adjusted EPS, COO Barber to Retire


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United Parcel Service Inc. is seeing more signs of success for Chief Executive Officer David Abney’s spending spree on new aircraft and upgraded sorting hubs, even as a U.S.-China tariff war casts a pall on global trade.

  • Adjusted operating profit climbed to 12 per cent of sales from 10.5 per cent a year earlier, UPS said in a statement Tuesday. The courier has been investing heavily to push down the cost of residential deliveries and expand in the health-care market.

Key Insights

  • UPS is getting a boost from a shift to one-day shipping led by Inc., which has increased demand for next-day air service. Amazon is leaning more on UPS after FedEx Corp. didn’t renew U.S. delivery contracts with the online retailer.
  • Savings from more automated sorting centers and new fuel-efficient planes began to kick in more strongly during the third quarter, and domestic unit costs fell 2.5 per cent on an adjusted basis. UPS also cut its investment plans by about US$500 million this year and the same amount next year, potentially easing concerns about overspending.
  • Abney is still trying to coax shares back to the peak of US$134.09 reached in early 2018. Investors punished the stock when the CEO announced the price tag of his transformation plan -- about $20 billion over three years -- in February last year.

Market Reaction

  • Shares rose 1.2 per cent to US$120 ahead of regular trading in New York. UPS climbed almost 22 per cent this year through Monday, slightly ahead of a 20 per cent gain for a Standard & Poor’s index of U.S. industrial companies. FedEx slid 5.8 per cent during the period.