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UPS cost controls shelter profit from softening delivery demand By Reuters



© Reuters. FILE PHOTO: The company logo for United Parcel Service (UPS), is displayed on a screen at the New York Stock Exchange (NYSE) in New York, U.S., October 22, 2019. REUTERS/Brendan McDermid

By Lisa Baertlein and Shivansh Tiwary

(Reuters) -United Parcel Service Inc on Tuesday reported a stronger-than-expected quarterly adjusted profit and reaffirmed its full-year forecast after higher delivery prices and cost controls offset softening e-commerce demand.

Delivery firms such as UPS and FedEx Corp (NYSE:) are pursuing higher-margin small to large business customers to support volumes and earnings as the COVID-19 pandemic-driven e-commerce bubble deflates and shoppers wrestle with soaring inflation. [Graphic]

After scrambling to keep up with surging e-commerce volume in the early days of the pandemic, Atlanta-based UPS and other delivery providers are now saddled with excess delivery capacity and face the task of predicting demand in a rapidly changing market. Keeping too many planes in the air and delivery trucks on the road fuels excess costs that can quickly sap profits.

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“The macro environment is very dynamic, but we are on track to achieving our 2022 financial targets by executing our strategy and controlling what we can,” UPS Chief Executive Carol Tomé said in the company earnings release.

Shares in the world’s largest parcel delivery firm rose 2.1% at $171.05 in midday trading after the company also reaffirmed its full-year revenue forecast of about $102 billion and adjusted operating margin of around 13.7%.

Rival FedEx last month pulled its annual forecast, citing a sharp global slowdown at the end of August.

“Third-quarter results fit with view that UPS got ahead of the slowing freight cycle and has a better grip on costs than FedEx,” Cowen analyst Helane Becker said in a note.

Looking ahead, Tomé and other executives signaled that volume in the critical year-end holiday season would soften due to package limit agreements with (NASDAQ:), its largest customer. They also expect to be busier in the days leading up to Christmas than last year, when shoppers bought goods early to avoid product shortages.

UPS’s adjusted third-quarter profit rose to $2.99 per share, beating Wall Street’s estimate of $2.84 per share.

Revenue per piece in its biggest and e-commerce-dependent domestic unit increased 9.8% for the quarter from a year earlier, even as demand weakened.

UPS reported third-quarter revenue of $24.2 billion – just missing analysts’ estimate of $24.3 billion – as consolidated average daily package volume declined 2.1% to 22.9 million in the quarter.