UPS managing shipping slowdown, results a contrast to rival FedEx
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UPS delivered a surprisingly upbeat outlook Tuesday, its financial path diverging from that of its rival FedEx, which recently sounded alarms about the economy in reporting its own down quarter.
Why it matters: For two companies whose financial health is typically aligned, the dramatic deviation illustrates the criticality of execution in an increasingly challenging environment.
Driving the news: UPS posted better-than-expected profit in the third quarter — with higher prices making up for lower volume.
- It reaffirmed its financial outlook for 2022, including projected revenue of about $102 billion and an adjusted operating margin of about 13.7%.
Between the lines: While executives said volumes are expected to continue a decline from a year ago, they were measured in their outlook.
- "We have not seen any demand destruction at this point," UPS CEO Carol Tomé told investors on a conference call, referencing a term used to define sustained decline.
Flashback: In September, FedEx said its performance was rapidly deteriorating due to a global economic slowdown — and that it was caught off guard.
- FedEx's stock fell by more than 20% in one session as it announced a slew of sudden cost cuts, including temporarily parking some aircraft, reducing flights, cutting labor hours and closing more than 90 FedEx office locations.
UPS stock, on the other hand, was up for much of Tuesday before closing down 0.4% in the final hour of trading.
- "What was encouraging was UPS’ better than expected yield and volumes in [U.S. operations] given the more difficult macro operating conditions," Goldman Sachs analyst Jordan Alliger said in a research note.
What they're saying: "In the third quarter, the global economy softened, especially outside the United States," UPS's Tomé said, "but we quickly responded."
- "We adjusted our network to match volume levels and continue to win in the most attractive parts of the market," she added.
Yes, but: It wasn't all roses for UPS, which reported a 6% decline in supply chain solutions revenue in the quarter, blaming it on "declines in air and ocean freight forwarding."
- CFRA Research analyst Colin Scarola downgraded UPS shares from "buy" to "hold."
- "We continue to like the long-term growth outlook for UPS, but we think our lowered valuation is appropriate given the near-term outlook for volume growth has worsened, in our view," Scarola wrote.
Our thought bubble: Management still matters. FedEx didn't see the downturn coming. UPS did, and reacted.
