UPS beats earnings estimates as higher prices drive profit
Yahoo Finance Live anchors discuss third-quarter earnings for UPS.
Video Transcript
- Everyone switching gears, logistic industry investors, they are breathing a sigh of relief this morning. This is after UPS posted stronger than expected Q3 earnings, a quarter that's strikingly different from FedEx's big earnings miss about a month ago. You're taking a look at some of the actuals versus the estimates. We've also been keeping an eye on shares of UPS here this morning in reaction to the news and particularly here with regard to-- and there you're seeing the extended hours move up in reaction to this report by about 2.6%.
But when you think about the logistics demand that UPS, that FedEx are going to have to continue to track through and what that actually means in terms of the macro environment and pricing strategy, they're addressing right now that the macro environment is very dynamic. But they're actually on tack-- on track, excuse me, to achieve 2022 fiscal targets, their financial targets, by executing the strategy and really just looking at what they can control in the mix right now.
- At first when this crossed the wires, my first thought was, wow, somewhat shocked because look what we heard from FedEx just over a month ago, major major profit whiff. Now they're completely overhauling their operations. You would think there would be some whiff or smell of those problems or those challenges that FedEx is dealing with in this UPS quarter, and then no, we got zero of that, US domestic segment operating profits up, revenue up. They were able to push through price increases in that US market successfully.
And then as I take a step back, and I realized, well, you know what, these are probably two different companies. And why is that the case? And I go back to UPS CEO, Carol Tome. I've covered her career for many years. She used to be the longtime CFO of Home Depot. She gets the numbers. She understands how to manage through challenging situations. She was the CFO of Home Depot during the great financial crisis.
And if you look back at Home Depot's performance during that period, sure, they got hit like many other companies around the world, but it wasn't that bad. I just think UPS is a better run company under Tome than what everything is going on over at FedEx.
- They've also got some price changes that are going to be effective, that coming in this current quarter too. So there is perhaps even more discussion around what this is going to mean in terms of their future forecasts from this point forward. December 27, 2022 is when some of those rates, UPS ground, air, international services, they're going to actually jump by an average of about 7%, just under that 6.9%.
And so with that type of price increase as well and what's being passed onto, clearly, some of their end consumers and the businesses that they work with and deliver for, there is a question of how long some of those price increases, whether that will just be the new normalization and whether that will ever come down, especially considering the fact that UPS is still having to navigate, like many other companies, higher operational expenses right now.
- Yeah, these are two now very, very different investment theses between FedEx and UPS. Of course they get looped in. They're essentially doing the same thing, of course, and that's transporting goods around the world. But you have now FedEx in full on restructuring mode. And you have UPS just in full on execution mode, delivering another good quarter here.
