A delivery company is shipping fewer packages than last year, but it’s still generating more money per item
United Parcel Service Incorporated UPS 15.45% makes more money by shipping fewer packages, and rewards investors with a larger dividend payout.
The delivery company increased its quarterly dividend by 49% or 50c per share on Tuesday. This is the largest increase since 1999 when the company first went public. The company’s new policy under Chief executive Carol Tome is to return half its earnings to shareholders through its dividend.
After UPS reported fourth-quarter earnings and revenue that exceeded analysts’ expectations, shares rose more than 13% in morning trade. It also stated that it will reach its long-term revenue and operating profit targets by the end of this calendar year instead of 2023.
UPS’s decision by the company to pay shareholders a higher dividend was made on the same day AT&T Inc. T-4.69% stated that it would roughly halve its annual payout after spinning of its media business.
According to the company’s most recent financial report, it shipped fewer packages via its trucks and planes last year than it did in 2011. The average daily shipping volume decreased 0.6% over the key holiday period. This is because a 4.8% decrease in international deliveries outweighed an increase in U.S. orders. The average revenue per item shipped increased by nearly 12% due to the higher shipping rates and surcharges during the holidays.
These trends are consistent with Ms. Tome’s stated strategy of “better, not larger”, where the company focuses on shipping more packages to its most profitable customers, which includes smaller businesses, and reducing shipping volumes that weren’t making it as much money.
The company’s focus is on helping it manage a tight labor markets, supply chain challenges, inflation, and disruptions caused by Covid-19. Ms. Tome stated Tuesday that she is obsessed with controlling what they can control.
Amazon.com Inc. was UPS’s largest customer. However, the percentage of revenue in 2018 was lower than 2020. Ms. Tome explained that the drop in revenue was due to an increase in shipping rates in the first year after the pandemic. It accounted for 11.7% of the company’s $97.3 billion in revenue in 2021, compared to 13.3% in 2020.
Ms. Tome stated that they have a great relationship despite Amazon’s efforts to build its own delivery network, which some analysts consider to be a threat to UPS’s core business. Ms. Tome stated that the two companies have agreed on the volume they should take and how much they should keep to make the best business for them.
UPS is seeing profit margins like never before thanks to its higher rates. According to BMO Capital Markets, the domestic segment’s adjusted operating margin of 12.2% was its highest since 2013.
According to third-party data, UPS performed well during peak shipping season in the weeks prior to Christmas. Along with FedEx Corp. and the U.S. The Postal Service performed well during this period in terms of timely deliveries, due to consumers shopping online earlier than usual. This helped to spread the shipping volume over a longer period of time, rather than having spikes that can affect performance.
UPS had to adapt its plans to accommodate the increased shipping volumes earlier in the season as well as the lower than expected volume closer to Christmas. Ms. Tome stated that it may have been the hardest peak of all time.
UPS reduced seasonal work and quickly returned equipment to rent as the busy season ended in order to lower costs.
UPS earned $3.1 billion or $3.52 per share for the period ending Dec. 31. UPS had posted a loss of $3.3 billion last year due to a noncash cost tied to its pension plan.
Per-share earnings, which exclude restructuring charges and other charges, were $3.59 compared to $2.66 last year. Analysts expected earnings of $3.10 per share.
Revenue was $27.8 billion, which is lower than analysts’ estimates of $27.06 trillion.
According to the company, it expects to reach $102 billion in revenues this year and have an adjusted operating margin (13.7%) It will spend $5.5 Billion on capital expenditures this year, an increase of $4.2 Billion last year.