UPS on Thursday reported positive revenue and profit growth in the third quarter, turning the corner on nearly two years of subpar performance. But the company also cautioned that macroeconomic conditions and more in-store shopping could dampen peak season shipping activity.
Full-year revenue guidance of $91 billion was down slightly, mostly related to the disposal of Coyote Logistics. The forecast suggests UPS (NYSE: UPS) doesn’t expect a surge of shipping activity during the current quarter, especially with management flagging a slowdown in U.S. online sales and lower-than-expected global manufacturing activity.
“Recently, shippers have tempered their volume expectations,” CEO Carol Tome said on a conference call with analysts. More than 100 of UPS’s top customers, who represent 60% of network volume and 85% of the peak surge, have tightened their forecasts for the holiday season.
Estimated electronic and mail-order sales in the fourth quarter are expected to increase about 3%, down from 5% previously, the UPS chief said.
“Part of this, we believe, is influenced by the tight, compressed peak period. There are only 17 shipping days between Thanksgiving and Christmas Eve. And what forecasters and some of our customers are saying is, because of the [short] shipping season, many customers will go into a store to complete their holiday purchases.
“The consumer actually is in pretty good shape. It will still be a good peak … but just not as dynamic as people thought at the beginning of the year,” said Tome.
The parcel logistics giant said higher revenue – up 5.6% year over year to $22.2 billion – combined with productivity initiatives produced a $2 billion operating profit, up 22.8% on an adjusted basis. Despite choppy macroeconomic conditions, UPS was able to increase revenue and profit margin by improving revenue quality and holding the line on costs.
Results beat analysts’ estimates, including adjusted earnings per share of $1.76 versus a consensus of $1.57. UPS in September completed the sale of freight brokerage Coyote Logistics to RXO for $1 billion, which resulted in a $152 million after-tax profit gain.