United Parcel Service (UPS 1.60%) just had its best year ever. The company was one of the few industrial stocks to post record-high revenue and adjusted operating income during what was otherwise a period of slowing economic growth.
UPS benefited from a surge in package delivery volumes as the pandemic shuttered brick-and-mortar stores -- sparking a surge in online shopping and selling. But higher revenue is just the headline story. Behind the scenes, the company's investments in healthcare and e-commerce paid off big in 2020, and should play a leading role in its growth for years to come.
Here's how UPS was able to capitalize on last year's trends, and why it's the best COVID-19 vaccine stock that no one is talking about.
Ramping up vaccine deliveries
UPS has been in the healthcare logistics business for more than 15 years, making it the ideal transportation company to ship millions of COVID-19 vaccine doses. During its fourth-quarter conference call, CEO Carol Tome noted that UPS has delivered an astounding 36.5 million vaccines from manufacturers to dosing locations at service levels of 99.99%. Along with automotive, its healthcare business delivered single-digit business-to-business (B2B) growth in what was otherwise a challenging year for B2B sales. Healthcare contributed to a 26% year-over-year increase in fourth-quarter supply chain and freight operating profit.
The company's involvement with vaccine distribution is no accident. In fact, UPS anticipated its key role as a major distributor as early as the second quarter. In the third quarter, Tome said the following about UPS Healthcare and the pandemic:
[The] healthcare team is supporting clinical trials across all stages for COVID-19 vaccines. Early involvement gives us valuable data and insights to design commercial distribution plans and manage the logistics for these complex products. We have a great opportunity and, frankly, a great responsibility to serve the world when a COVID-19 vaccine becomes available. When that time comes, our global network, cold chain solutions, and our people will be ready.
Tome was right: UPS was ready. On Dec. 12, the company announced it was distributing the Pfizer/BioNTech vaccine according to plans received by Operation Warp Speed and officials from the Centers for Disease Control and Prevention. (Founded on May 15, 2020, Operation Warp Speed is a partnership between the U.S. government and the private sector to accelerate vaccine development and distribution.) On Dec. 18, UPS partnered with McKesson, a medical supply distributor, to deliver Moderna's vaccine. With vaccine distribution still in its infancy, investors should pay attention to UPS' involvement in the coming months to see how that translates to its top- and bottom-line results.
Vaccine growth trajectory
One of the best ways to gauge the effectiveness of UPS's vaccine delivery is through its logistics figures. UPS doesn't report its healthcare results individually. Instead, these results are folded into logistics under supply chain and freight. However, in the fourth quarter, the company did report that healthcare had its best top and bottom-line growth in company history. And UPS has attributed big spikes in logistics revenue and spending to healthcare.
It's also worth keeping track of UPS' deliveries compare to transportation rival, FedEx (FDX 2.88%) to determine if UPS is better positioned to handle the vaccine rollout. Like UPS, FedEx has gained regulatory approval to deliver both the Pfizer/BioNTech and the Moderna vaccine. Both companies have expanded their healthcare logistics and services offerings over the past year. Ultimately, both shippers should benefit from the rollout, but UPS has some advantages over FedEx.
In late November, UPS beefed up its dry ice production capabilities and announced a partnership with Stirling Ultracold to make portable ultra-low temperature freezers. The ramp-up comes in addition to UPS' global network of re-icing stations. FedEx transports around half a million dry ice shipments every month, but UPS expects a dry ice shortage as pharmaceutical companies buy up dry ice to successfully conduct their vaccine rollouts.
In addition to making its own dry ice, UPS has one of the most sophisticated international global biopharma networks. It can ship small to large freight shipments at cold to cryogenic temperatures across the world. UPS offers temperature monitoring that helps keep products within a safe temperature range. UPS sensors are able to log logistics and pinpoint when healthcare shipments will arrive.
In addition to having a larger network, UPS' biggest advantage in the vaccine rollout is UPS Premier. Launched in May 2020, the precision logistics program is tailor-made for a vaccine rollout. According to a UPS statement:
This new technology-enabled for fee service is what we call a priority lane within the integrated UPS package network. We will be able to classify and identify critical healthcare shipments before they leave our customers' hands and enable greater visibility and control through their journey with technology. This is a major breakthrough in managing sensitive shipments that require an extra level of control.
Simply put, UPS is incredibly well-positioned to take advantage of the COVID-19 vaccine rollout. Investors should monitor logistics revenue, spending, and operating income to track how the vaccine distribution affects UPS's overall performance.