Editor’s note: This article was updated to include comments from UPS management’s conference call with investors and the company’s share price.
UPS reported revenue and profit soared in the third quarter as the shipping giant gears up for a holiday surge.
The Sandy Springs-based company has already seen demand for package deliveries rise as more consumers shop online amid the COVID-19 pandemic. Adding the rush of holiday shopping on top of that is expected to create an even bigger challenge for UPS and its competitors in the period leading up to Christmas.
UPS posted $21.24 billion in revenue in the three months ended Sept. 30, up 16% from a year earlier, as U.S. domestic average daily volume increased 14%. The shipper also cited growth from small- and medium-sized businesses and strong outbound demand from Asia.
Net income rose 12% to $1.96 billion. Adjusted operating margin slipped 0.7%, including a 2.2% decline for U.S. domestic packages, as UPS made more deliveries to homes instead of stores during the pandemic, pushing up costs. The company also has hired tens of thousands of extra workers and added capacity.
UPS CEO Carol Tomé said in a written statement Wednesday that the company’s performance shows the agility of its shipping network but also the “ongoing challenges of the pandemic.”
The company declined to give guidance on future financial performance, saying it can’t predict the impact or duration of the coronavirus or reasonably estimate how UPS will perform in the future.
UPS’s share price was 5.0% lower at $162.32 in mid-morning trade Wednesday on the New York Stock Exchange. But it’s still risen nearly 40% this year, with most of the gains since July, boosted by strong second-quarter results.
Consumers are often concerned about whether packages will arrive in time for the holidays. That’s often the biggest challenge for UPS, FedEx and the post office — managing their delivery networks to meet the demand while not sacrificing profits.
UPS has started hiring more than 100,000 seasonal workers for the holidays, including about 5,000 in metro Atlanta. Amazon is also hiring 100,000 people, including 4,000 in metro Atlanta.
UPS has already announced higher holiday shipping surcharges for some of the biggest retailers.
Chief Financial Officer Brian Newman emphasized a focus on higher revenue business, in what Tomé has called a “Better, not Bigger” approach, and on reducing costs.
The company is working on cutting overhead expenses, and offered buyouts to more than 11,000 management employees this fall. Tomé said 1,600 have signed up for the buyouts, which is expected to cut expenses by several hundred million dollars.
Separately, UPS hired 40,000 additional workers earlier this year to handle increased package volumes, and has had higher turnover in part due to COVID-19, according to Tomé. The influx of new workers drove higher expenses, with productivity below expectations, she said.
Newman said UPS is working with customers to control volume and “ensure the resiliency of our network.”
That includes encouraging retailers to run promotions earlier, including some in mid-October, to spread out peak holiday demand over time.
“We have been operating in a peak-like environment globally for many months,” Tomé said. “We are projecting a pretty peaky peak."
What it means to you
UPS is gearing up for a surge in demand from an increased shift from in-person to online shopping over the holidays. But it also plans to control volume to manage its costs.
Industry experts say it’s more important than ever to order holiday gifts early.
