Adjusted earnings of $1.69 a share beat the $1.63 analysts expected, and UPS now sees about $92.6 billion of revenue this year. The stock rose 4.6%. Profitability per dollar of revenue is lower than a year ago.
UPS is growing again. It is making a little less on each dollar of it.
The delivery company reported third-quarter revenue of $22.9 billion, up 6.7% from a year earlier and above the $22.29 billion analysts expected, according to LSEG. Adjusted earnings were $1.69 a share, ahead of the $1.63 estimate but below $1.74 a year earlier. On a GAAP basis, UPS earned $1.37 a share, after $279 million, or 32 cents a share, of transformation costs.
UPS raised its full-year forecasts. It now expects revenue of about $92.6 billion, up from about $91.2 billion, and adjusted earnings of about $7.28 a share, up from $7.22. It expects adjusted operating profit of about $8.75 billion and adjusted free cash flow of about $6.1 billion, and fourth-quarter revenue of about $25.7 billion.
"Given the strength we see in the business, we are raising our full-year financial guidance," the company's chief executive said.
The shares rose 4.6% to $104.89 at about 1:46 p.m. Eastern, building through the session after a smaller gain before the open. FedEx rose 1.9%.
Where the growth came from
Supply Chain Solutions grew fastest, with revenue up about 18% to about $3.0 billion. U.S. Domestic revenue rose 4.5%.
The margin
The adjusted operating margin was 9.0%, down from 10.0% a year earlier. Adjusted operating profit was $2.1 billion. The decline was not across the board: the U.S. Domestic adjusted margin rose to 7.0% from 6.4% and International to 14.9% from 14.8%, Reuters reported, which puts most of the pressure in Supply Chain Solutions.
That is the tension in the quarter. Revenue rose faster than expected and the forecast went up, but each dollar of revenue produced less profit than a year ago, and adjusted earnings per share fell.
Two readings
One reading is that UPS has returned to growth and is confident enough to raise its outlook for a second time. Revenue is beating, the guidance went up, the cost program is running and free cash flow is expected to be about $6.1 billion.
The other is that growth is costing margin. A 100-basis-point drop in the adjusted margin and lower adjusted earnings than a year ago mean the higher revenue is not yet turning into higher profit per share.
What to watch
Fourth-quarter revenue against the $25.7 billion outlook during the holiday peak, the adjusted margin trend, U.S. Domestic volume and revenue per piece, and FedEx's next results.