UPS reports rise in Q3 profit on rebounding volumes, cost cuts
Recasts first paragraph, adds analyst estimates in paragraphs 8 and 9, background throughout
Oct 24 (Reuters) -United Parcel Service UPS.N surpassed Wall Street estimates for quarterly profit andraised its full-year adjusted operating margin forecast on Thursday, after it hived off its volatile truckload brokerage business, Coyote Logistics.
Shares of the company, seen as a bellwether for the global economy, were up more than 5% in premarket trading.
UPS is seeing year-on-year volume growth in the U.S. in the second half of the year, following nine quarters of weak demand since the end of the early pandemic e-commerce surge in late 2021.
However, the bulk of the growth ahead of the peak holiday season has been driven by new e-commerce entrants, identified by industry experts and shoppers as China-linked bargain retailers Shein and Temu.
This has exacerbated the shift from premium air services to less expensive ground services and then to the even more low-profit SurePost services, where UPS picks up packages and hands about 60% of them off to the U.S. Postal Service for final delivery.
The company had slashed its full-year adjusted operating margin target to 9.4% in July, despite an uptick in U.S. volumes because of the shift. It now expects a full-year operating margin of 9.6%.
UPS saw a 6.5% growth in average daily volumes in its domestic segment in the third quarter. Its adjusted operating margin of 8.9% was above last year's 7.7%, on cost cuts.
The parcel delivery firm reported adjusted profit per share of $1.76, compared to last year's $1.57 per share and above analysts' average estimate of $1.63 per share.
Consolidated revenue of $22.25 billion was also above analysts' average estimate of $22.14 billion.
UPS has been onboarding the United States Postal Service air cargo business, which it took over from rival FedEx FDX.N, after its contract expired on September 29.
UPS expects the five-year USPS contract to be profitable in its first year.
Reporting by Ananta Agarwal in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Pooja Desai
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