Atlanta’s United Parcel Service (NYSE: UPS – $116.10) benefited from continued growth in overnight air shipments in the third quarter, as speedy next-day delivery increasingly becomes the standard for online orders. UPS said the high demand for next-day shipping, with volume up 24% in the U.S., and strong cost management helped the company boost profit in the period. Overall U.S. volume rose 9%. Overseas, UPS’s international business posted a decline in revenue amid a drop in shipments between the U.S. and Asia. Shipments inside Europe and within Asian markets grew. For the third quarter, adjusted per share earnings were $2.07, slightly topping the Street estimate of of $2.06 and compared to last year’s $1.82. Revenue increased 5% to $18.32 billion, slightly under the consensus view.
UPS is working to lower the cost of delivering each package, including air shipments, where carrying more online orders that are generally lighter and cheaper to ship is driving down the average price per shipment. The recent opening of three major automated sorting hubs will improve transit times and prepare UPS for the upcoming peak season. Profits should continue to benefit from retailers shifting from two-day delivery to next-day delivery. Too, the company added three new retail partners to its access point network, soon putting 90% of U.S. consumers within five miles of a drop-off/pickup location and with seven day pickup and delivery service. And finally, aircraft fleet modernization ought to satisfy skyrocketing e-Commerce demand. All this makes UPS shares, yielding 3.2%, a solid choice for conservative accounts.