UPS delivers 16% revenue growth but shares price in future downside

US-based international parcel company, UPS (NYSE:UPS) saw its shares drop on Tuesday, despite posting some healthy financial gains during third quarter trading.

The company booked Q3 consolidated revenue of $21.2 billion, up 15.9% year-on-year. Similarly, the company’s consolidated average daily volume increased 13.5% on-year, while net income rose by 11.8% and 10.7% on an adjusted basis, to $2.0 billion.

The company also recorded a third quarter operating profit of $2.4 billion, up 11.0% versus last year, and 9.9% on an adjusted basis. Fundamentals appeared equally peachy for UPS shareholders, with adjusted diluted earnings per share bouncing 10.1% year-on-year.

“Our performance highlights the agility of our global integrated network amid the ongoing challenges of the pandemic. Our results were fuelled by continued strong outbound demand from Asia and growth from small and medium-sized businesses,” said Carol Tomé, UPS chief executive officer.

“UPSers are everyday heroes who are keeping the world’s supply chains moving. I want to thank our team for their ongoing commitment to our customers and the communities we serve.”

In its US operations, the company saw its profits fall by more than $100 billion during Q3, even though daily average volume increased by 13.8%.

In its International Segment, volumes rose by 12.1% and profits spiked by over $300 million.

For its Supply and Freight business, revenues increased by 16.5%, and profits rose by around $50 million.

“Our Better, not Bigger approach had a positive impact on our performance in the quarter, specifically through the revenue-quality actions we’ve taken.  Additionally, we recently launched new initiatives to further reduce our costs,” said Brian Newman, UPS chief financial officer.

“Looking ahead to the fourth quarter, we are collaborating with our customers and using our proven tools to control volume and ensure the resiliency of our network.  We are focused on delivering a successful peak and generating cash returns.”

Following what was seemingly a positive update, UPS shares dipped by between 4% and 5%, down to just over $163 a share. This price dip perhaps anticipates some bounce-back against the rapid rise of deliveries during lockdown, and prices in the effect of a possible increase in face-to-face retail activity as vaccines start to be administered in the new year.

At present, the UPS price is around 10% ahead of analysts’ target of $146.75 a share. Analysts currently have a consensus ‘Buy’ rating on the stock; it has a p/e ratio of 32.05; and the Marketbeat community has a 51.90% ‘Underperform’ stance on the stock.