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The post UPS Stock Falls on Lackluster Delivery Forecast appeared first on Millennial Money.
Package delivery volumes have surged over the past year as the COVID-19 pandemic supercharged e-commerce adoption, but that boom may be slowing down as many parts of the world start returning to normalcy.
UPS (NYSE: UPS) reported second quarter earnings on Tuesday morning, and investors brushed aside better-than-expected results and focused instead on cautious commentary regarding the company’s core domestic business.
As of 12:20 p.m. EDT, UPS stock had fallen by 8%.
The pandemic surge may be fading
Revenue in the second quarter increased 14.5% to $23.4 billion, modestly ahead of the $23.2 billion in sales that analysts were modeling for. That resulted in adjusted earnings per share of $3.06, also beating the consensus estimate of $2.81 per share in adjusted profits.
However, domestic average daily package volumes declined, leading to fears that the pandemic-related tailwinds may be subsiding. Volume growth in the smaller international segment wasn’t enough to offset the domestic weakness.
| Segment | Average Daily Package Volumes | YOY Change |
| Domestic | 20.51 million | (2.9%) |
| International | 3.73 million | 12.7% |
| Consolidated | 24.24 million | (0.8%) |
Most shipments related to e-commerce are shipped with UPS Ground, which saw average daily package volume fall by 4% to 16.86 million. UPS Ground shipments in the United States represented 70% of total consolidated volumes in the quarter.
Partially compensating for the decline in volumes, UPS has been able to increase prices throughout the pandemic due to strong shipping demand. Average revenue per piece in the United States increased 13% to $10.97, while that metric gained 16% to $19.32 internationally. On a consolidated basis, average revenue per piece was $12.26.
The company appointed a new CEO, Carol Tomé, last summer as the crisis was in full swing. Under Tomé’s leadership, UPS implemented a “better, not bigger” strategy that focuses on improving revenue quality, expanding profitability, and strengthening productivity with disciplined investments.
What comes next
Management warned that domestic volumes could be weak in the second half of the year as consumers return to shopping in stores. The holiday shopping season is a critical time for package shippers.
UPS has not been providing detailed financial forecasts around revenue or earnings due to continued macroeconomic uncertainties, but is instead offering investors insight around its capital allocation plans.
The company is targeting a consolidated operating margin of approximately 12.7% this year, with a goal of achieving return on invested capital (ROIC) of 28%. Capital expenditures for 2021 are expected to be roughly $4 billion, and UPS has already paid down $2.55 billion in long-term debt.
Looking farther out, UPS had previously outlined long-term goals for 2023 at its Investor & Analyst Day last month. The company hopes to reach an adjusted operating margin of 13.7% that year, alongside a ROIC target of 29%.
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The post UPS Stock Falls on Lackluster Delivery Forecast appeared first on Millennial Money.
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