What happened
United Parcel Service (UPS 0.53%) blew past estimates with its first-quarter results, and the stock is surging 10% higher as a result. The gains appear sustainable, meaning there is a lot to like about UPS from here.
So what
On Tuesday UPS reported first-quarter adjusted earnings of $2.77 per share on revenue of $22.9 billion, easily outpacing analyst expectations for $1.72 per share in earnings on sales of $20.5 billion. The company is seeing strong revenue growth across all segments and improving pricing power, leading to the beat.
Image source: United Parcel Service.
Adjusted operating profit in the quarter grew 164% year over year to $2.95 billion, while margins improved to 12.9%.
"During the quarter, we continued to execute our strategy under the better not bigger framework, which enabled us to win the best opportunities in the market and drove record financial results," UPS CEO Carol Tome said in a statement.
Company officials on the post-earnings call said they were "confident" domestic margins will continue to improve in 2021, but offered no firm guidance for 2021 ahead of its June 9 analyst day.
Now what
For a while now the narrative has been that UPS and other shippers have thrived through the pandemic because increased residential business from e-commerce more than outweighed declines in business-to-business and international shipping. To some extent this remains true, with UPS still waiting on a B2B recovery.
But with each passing quarter evidence is growing that UPS and its rivals are likely to be able to generate strong margins on the domestic business even after the pandemic recedes, thanks to strong demand, streamlined costs, and better asset utilization. Investors are understandably excited about this business.
