Stronger U.S. Demand Bolsters Profit at UPS -- 2nd Update

Date : 10/22/2019 @ 3:07PM
Source : Dow Jones News
Stock : United Parcel Service (UPS)
Quote : 123.4  -0.68 (-0.55%) @ 8:28PM

Stronger U.S. Demand Bolsters Profit at UPS -- 2nd Update

United Parcel Service (NYSE:UPS)
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By Paul Ziobro 

United Parcel Service Inc. benefited from a continued surge in overnight air shipments in the third quarter, as speedy next-day delivery increasingly becomes the standard for online orders.

The delivery company also announced the departure of Chief Operating Officer Jim Barber, who since his appointment to the role in March 2018 was viewed as the top candidate to replace Chief Executive David Abney. Mr. Barber, 59 years old, is retiring at the end of the year, the company said, opening up the CEO succession race.

Mr. Barber, a 35-year UPS veteran, returned to the U.S. from a long stint working internationally to help improve performance in domestic operations. His promotion to COO made him a CEO-in-waiting, as Mr. Abney previously held that position briefly before becoming CEO in 2014.

Mr. Barber helped oversee the increasing automation of the UPS network and new procedures that resulted in a solid peak holiday season last year, earning him praise on Wall Street.

Citi analyst Christian Wetherbee said Mr. Barber was "well-liked by the investment community" and that losing an executive "seen as an operational catalyst likely will weigh on shares."

Mr. Abney said Tuesday that the company still has a strong bench, including a mix of longtime UPS executives and some new outside hires, that will be able to carry out the company's recent major changes.

Shares fell 3.2% in early trading to $114.71.

UPS said the high demand for next-day shipping, with volume up 24% in the U.S., and strong cost management helped the company boost profit in the period. Overall U.S. volume rose 9%.

The gain in air shipments comes as Amazon.com Inc., the largest online retailer in the U.S., recently ended its shipping contracts with UPS rival FedEx Corp. and is increasingly promising to deliver orders to homes the next day. Other online merchants also are trying to keep up with faster shipping speeds, which UPS expects to continue to occur during the coming holiday season and beyond.

"We expect demand to be strong during peak as next-day delivery increasingly becomes the new standard," Mr. Barber said on Tuesday's earnings call.

UPS is working to lower the cost of delivering each package, including air shipments, where carrying more online orders that are generally lighter and cheaper to ship is driving down the average price per shipment.

The company is achieving that in part from more automation. It is adding nearly 5 million square feet of "highly automated" facilities this year that can sort about 400,000 packages an hour.

Mr. Abney said that despite softness in industrial production and weaker global growth, a strong U.S. consumer is lifting the company as more shopping is done online. "The consumer continues to drive the economy," Mr. Abney said.

Overseas, UPS's international business posted a decline in revenue amid a drop in shipments between the U.S. and Asia. Other shipments inside Europe and in other Asia trade lanes grew.

For the period, the Atlanta-based shipper posted quarterly earnings of $1.75 billion, or $2.01 a share, up from $1.51 billion, or $1.73 a share, a year earlier. Excluding certain transformation costs, per-share earnings were $2.07, slightly topping the estimate of analysts polled by FactSet.

Revenue increased 5% from the year prior to $18.32 billion, slightly under the consensus estimate.

The company backed its earnings guidance for the year.

Micah Maidenberg contributed to this article.

Write to Paul Ziobro at Paul.Ziobro@wsj.com

 

(END) Dow Jones Newswires

October 22, 2019 10:52 ET (14:52 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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