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Why UPS Surged Nearly 20% in April

By Lee Samaha - May 5, 2021 at 12:48PM

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The company continues to benefit from a very favorable end-market environment.

What happened

Shares in package delivery giant UPS (UPS -0.33%) rose a whopping 19.9% in April, according to data provided by S&P Global Market Intelligence. Most of the move occurred after a bumper set of first-quarter earnings. UPS managed to increase revenue by 27% year over year and operating profit by a remarkable 158%. Not only were the numbers excellent, but UPS demonstrated real progress on its overarching goals.

For example, the overall adjusted profit margin expanded to 12.9% from 6.2% in the same period last year, with U.S. domestic adjusted profit margin expanding to 10.4% from 3.5% in the first quarter of 2020. The impressive margin performance is a demonstration that UPS can increase profit margin even when it's making relatively more business-to-consumer (B2C) deliveries -- a key aim for the company.

Delivery packages on a doorstep

Image source: Getty Images.

For reference, B2C deliveries tend to be more costly than business-to-business (B2B) deliveries as they often involve inefficiently packaged items, which are delivered to myriad residential addresses. 

Moreover, average daily volume growth for small and medium-sized businesses (SMB) increased 35.6% in the quarter. That's great news because growing its SMB market is a key strategic aim for management.

Elsewhere, the international and supply chain and freight segments both reported 30%-plus year-over-year growth in revenue, and operating profit growth of around 100%. The international segment's growth is being driven by the surge in deliveries (average daily volume up 23.1%) as lockdown measures persist. Meanwhile, the supply chain and freight segment is benefiting from a resumption in economic activity, most notably in Asia.

So what

UPS continues to take advantage of favorable conditions generated by the pandemic, and there's little doubt that the development of its strategic aims -- which include expanding in the SMB and healthcare markets -- has been accelerated by the stay-at-home measures imposed on the global economy in 2020.

Furthermore, the company looks set for another great year in 2021. A cyclical recovery in the economy should lead to a resumption of growth in the B2B market, while UPS hopes there will be some sort of structural shift in consumers' habits toward favoring e-commerce over retail.

Now what

Investors will be hoping UPS can continue to expand margin while growing e-commerce delivery volumes and taking full advantage of its new relationships with SMBs in particular. Management haspromised investors a strategy update on its investor day presentations on June 9, a key date to look out for.

 

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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