UPS beats quarterly profit estimates, raises operating margin forecast

(Reuters) -United Parcel Service surpassed Wall Street estimates for quarterly profit and raised 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 (NYSE:FDX), after its contract expired on September 29.

UPS expects the five-year USPS contract to be profitable in its first year.