Dallas, TX — UPS is doing booming business in next-day deliveries in the United States while keeping costs under control, but the weakening global economy is contributing to disappointing revenue growth.
The delivery giant said Tuesday that third-quarter profit rose 16% to $1.75 billion. Revenue, however, fell short of Wall Street expectations, and UPS shares dipped in morning trading.
UPS is taking advantage of increasingly demanding consumers. In the third quarter, its volume of next-day deliveries in the U.S. jumped 24% and two-day service surged 17% compared with a year ago.
“There has just been a structural change when it comes to air shipments, and big e-tailers and retailers and others are wanting to get packages to customers within 24 hours,” UPS CEO David Abney said. In an interview, he noted that UPS has added 11 planes this year to handle the growth in quick shipments.
Rival FedEx recently ended its U.S. air shipments for Amazon.com. UPS did not break out the benefit it might have gained. Abney instead pointed to UPS’ strategy of pursuing business with small and medium-size retailers and other businesses.
The delivery companies are heading into the most important part of the year for them, the Christmas-shopping season that starts in earnest around Thanksgiving Day. Atlanta-based UPS said it expects to handle about 32 million packages a day during peak, 50% more than an average day the rest of the year. The company plans to hire 100,000 seasonal workers to help sort and deliver the load.
UPS expects that air shipments will continue to grow during the holiday crush “as next-day delivery increasingly becomes the new standard” for retail shipments to consumers, Chief Operating Officer Jim Barber said during a call with analysts.
UPS reported third-quarter earnings excluding some one-time costs, mostly employee benefits related to restructuring, were $2.07 per share. That was a penny better than expected, according to surveys by Zacks Investment Research and FactSet.
Revenue rose 5% to $18.32 billion, slightly below expectations in the FactSet survey. Revenue from package deliveries in the U.S. rose nearly 10% but just 0.5% internationally.
Costs grew 3% despite a 6% increase in employee pay and benefits. Executives cites automation in new facilities for driving down the average cost per package by more than 2%.
The company stuck to its full-year forecast of profit between $7.45 and $7.75 per share.