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UPS Stock Tumbles As E-Commerce Boom Lifts Profit But Also Hits Margins

UPS (UPS) easily beat Q3 estimates Wednesday as e-commerce continued to boom, but warned profit margins are suffering. UPS stock sank.

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UPS Earnings

Estimates: Wall Street expected UPS earnings to fall 12% to $1.82 per share despite revenue growing 10% to $20.08 billion, according to Zacks Investment Research.

Results: UPS earnings rose 10% to $2.28 a share with sales up 16% to $21.24 billion. It was the third straight quarter of accelerating revenue growth.

But UPS also saw a drop in U.S. profits and lower margins due to increased deliveries to homes, which are less lucrative than deliveries to businesses.

Outlook: UPS is not providing revenue and EPS guidance due to the coronavirus.

Amazon (AMZN) helped get holiday shopping off to an early fourth-quarter with a delayed Prime Day event earlier this month

The rush to order online has only added to the e-commerce boom that started with the pandemic, giving UPS and other shippers increased pricing power.

UPS Stock

Shares tumbled 8.8% to close at 155.78 on the stock market today, diving below a 167.46 three-weeks-tight buy point. UPS stock closed Tuesday in range from that tight pattern, according to MarketSmith chart analysis.

Among other delivery stocks, FedEx (FDX) sold off 5.3% Wednesday. XPO Logistics (XPO) sank 6%. Amazon stock, which reports Thursday night, lost 3.8%.


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Analyst Backs UPS Stock

Last month, FedEx blew away fiscal Q1 forecasts. Management credited volume growth in FedEx International Priority and U.S. domestic residential package services as well as yield improvement at FedEx Ground and FedEx Freight.

Meanwhile, UPS stock rose Tuesday, when UBS analyst Thomas Wadewitz forecast "significant pricing gains" for UPS and rival FedEx in Q4 and into 2021.

"For UPS, we also expect new cost takeout and efficiency programs in 2021 to support meaningful margin expansion in the large domestic package business," Wadewitz added in a note to clients.

UPS plans to hire more than 100,000 seasonal workers for what it predicts will be a record peak holiday season. The workers will "support the anticipated annual increase in package volume that will begin in October 2020 and continue through January 2021," UPS said last month.

Find Aparna Narayanan on Twitter at @IBD_Aparna.

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