UPS Spikes 11% In Pre-Market As Quarterly Profit Surprises Investors

Shares in UPS (UPS) are soaring 11% in Thursday’s pre-market trading after the package delivery giant’s second-quarter earnings crushed analysts’ estimates as the coronavirus pandemic accelerated demand for online deliveries.

The stock is currently rising to $137.15 as UPS reported adjusted earnings of $2.13 per share, beating the $1.07 a share forecast by analysts. Revenue rose 13.4% to $20.5 billion, which is about $3.5 billion above the analyst consensus.

“Our results were better than we expected, driven in part by the changes in demand that emerged from the pandemic, including a surge in residential volume, COVID-19 related healthcare shipments and strong outbound demand from Asia,” said UPS CEO Carol Tomé.  “UPSers are keeping the world moving during this time of need and I want to thank our team for their hard work and outstanding efforts to serve our customers, our communities and each other.”

In the year-to-date period cash from operations stood at $5.9 billion with adjusted free cash flow of $3.9 billion. UPS did not provide any guidance on its revenue and diluted earnings per share outlook due to the uncertainty around the timing and pace of the economic recovery.

“Moving forward we are focusing on efficiency and revenue quality to improve U.S. operating margins longer term,” said UPS chief financial officer Brian Newman.  “Our liquidity and cash position remain strong, allowing us to invest in enabling capabilities through this time of unprecedented business disruption.”

Earlier this month, Credit Suisse analyst Allison Landry reiterated a Hold rating on the stock with a $118 price target, saying that the company is at an “existential crossroads”.

“UPS is at an existential crossroads with COVID having pulled forward what was initially expected to be 8-10 years of B2C/residential mix into just a few short months,” Landry wrote in a note to investors. “The margin erosion from higher cost B2C has long been problematic – amplified by the massive upswing in capex required to more efficiently handle these volumes – but the good news for UPS, in our view, is that the profound pandemic-driven acceleration in mix will force a permanent, structural pricing tailwind in the domestic parcel market.”

Meanwhile, the rest of the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 4 Buy ratings versus 4 Hold ratings. With shares up 5.8% this year, the $118.17 average price target implies 4.5% downside potential over the next 12 months. (See UPS stock analysis on TipRanks)

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