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UPS shares hit sturdy fourth quarter as Covid drives on-line purchasing

An independent contractor driver wears a face mask while operating a delivery truck to deliver N95 respirators outside of a United Parcel Service Inc. (UPS) ground sorting facility in Louisville, Kentucky, USA on Monday, April 13, 2020.

Luke Sharrett | Bloomberg | Getty Images

UPS stocks rose more than 4% on Tuesday after the company reported better-than-expected sales and profits during the busy Christmas shopping season, driven by a boom in online shopping due to the Covid-19 pandemic.

Revenue for the Atlanta-based logistics and delivery company rose 21% to $ 24.9 billion for the fourth quarter ended December 31. This was a record for UPS, which posted unprecedented e-commerce sales over the holidays. The company had sales of $ 20.6 billion in the same quarter of 2019.

The domestic parcel business saw revenue up 17.4% year over year as its network was filled to the brim with parcels from online retailers, including Amazon.

"Looking into the fourth quarter, our results were strong and significantly better than expected," said CEO Carol Tome on the company's earnings statement following the report. "This is the highest quarterly operating profit in the company's history. A record profit has been achieved in each segment."

Here's how UPS fared relative to investor expectations in the fourth quarter, based on Refinitiv estimates:

Adjusted earnings per share: $ 2.66 per share versus $ 2.14 expected. Revenue: $ 24.9 billion versus $ 22.87 billion expected.

The company posted a sizeable loss of $ 3.26 billion for the quarter after reporting fees of $ 5.6 billion. These charges included a $ 4.9 billion market value annuity, an after-tax impairment loss of $ 114 million, and an impairment loss of $ 545 million related to the Company's sale of UPS Freight.

The sale of the freight department was in line with Tome's goal of making the logistics giants "better, not bigger".

Tome, who took over the top position in June, said UPS Freight was "a capital-intensive, low-return business" and that its sale should provide better operating margins and return on invested capital going forward.

UPS did not provide an outlook on future earnings due to the ongoing uncertainty caused by the pandemic. However, Tome said ecommerce sales will remain strong as a percentage of total retail sales.

The results come from a record-breaking shipping season fueled by the pandemic. The buyers were already tempted to distribute the number of packages in the system at the same time with Christmas sales in October.

At times, UPS asked drivers to stop collecting packages from some major retailers such as Nike and Gap after they exceeded the capacity allocations set by the delivery company. UPS also introduced surcharges to offset higher costs associated with increased package volumes and the pandemic.

Shipping competitor FedEx fell in December after reporting earnings for the second quarter of the fiscal year. Wall Street was disappointed by higher operating costs despite above-average sales and earnings estimates.

UPS Adjusted Operating Margin increased slightly to 11.5% for the quarter, although the domestic shipping unit margin decreased slightly to 8.8%.

In addition to vacation deliveries, UPS and rival FedEx began shipping Covid vaccines from Pfizer and Moderna to the US in December to bolster their health care business. According to Tome, UPS has so far been able to provide "over 99% service" for the delivery of Covid vaccines.

"As we look to the New Year after 2020, we are optimistic. We started shipping COVID-19 vaccines in the fourth quarter and are ready to bring hope and health to people around the world," said Tome.

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