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By Yashasvini Razdan, 3:00 PM ET
The anticipation surrounding the economic recovery has proven to be a downside for United Parcel Service (UPS) whose shares hit a three-month low after the company reported its second-quarter earnings.
UPS reported a 2.9% drop in the second-quarter domestic volume, with a 4% drop in-ground, comprising largely of e-commerce deliveries, as compared to the past year. The stock had fallen 9.3% at $190.32 in midday trading, its lowest price since late April.
Throughout the pandemic, the business of UPS was supported via air-shipments, e-commerce packages, and delivery of healthcare equipment including COVID-19 vaccines. As the lockdown restricted movement, people opted for online shopping and e-commerce, building the demand for delivery systems, which the company milked.
As the package demand grew, shareholders' expectations for UPS earnings rose.
The investor sentiment has been tainted by the declining average daily volume and higher than expected unit costs, as the economy heads towards a rebound. Its average daily volume of shipments from businesses to homes fell 15.8% in 2Q compared to a year ago.
UPS reported a 14.5% increase in consolidated revenues as compared to last year, amounting to $23.4 billion, beating Wall Street analysts forecasts. Its consolidated operating profit rose 47.3% over the same period to $3.3. billion.
UPS earned $3.06 per share, excluding items, up 50.2% from last year.
UPS’ business is threatened by varying factors the most important of them being the residential business that provides lower profitability as compared to business deliveries which have more packages per stop.
Rising costs due to worker protection from COVID-19, quick deliveries using trains instead of trucks, and competition with other big players with better transit times in the same field, jeopardize UPS’ earnings. Although with the reopening of offices, the number of business packages will increase and catch up to its earlier levels.
(With inputs from Bloomberg)
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