UPS profit rises ahead of peak holiday season

United Parcel Service Inc (UPS.N) reported better-than-expected quarterly profit and revenue on Tuesday, bolstered by strong e-commerce demand that has driven the delivery giant to raise shipping rates and cherry-pick more profitable customers.

The Atlanta-based company, which is heading into the peak holiday delivery season, raised its forecast for full-year adjusted operating margin to 13% from 12.7%.

UPS shares jumped 6.7% to $217.46 on the results, which also lifted rival FedEx (FDX.N) 1.7%.

UPS again plans to hold customers to agreed-upon holiday volumes to avoid overloading its facilities and staff. Volume growth for its biggest customers, including No. 1 user (AMZN.O), will decline as UPS works to deliver more packages for small businesses and commercial users.

To that end, Chief Executive Carol Tome said UPS is back to handling about the same number of Amazon packages as in 2019 – before pandemic-fueled shipments surged and shipping rival Amazon added significant home delivery capacity.

Total revenue rose 9.2% to $23.2 billion for the third quarter, topping analysts’ average estimate for $22.6 billion, according to Refinitiv I/B/E/S data.

Adjusted operating profit jumped 23.4% to $2.9 billion, or $2.71 per share, above the average analyst estimate of $2.55.

In September, FedEx posted a 7% drop in quarterly profit and cut its full-year forecast after staffing shortages and turnover drove $450 million in excess labor costs and caused home delivery hiccups.

UPS appears to be benefiting from its unionized workforce, which is among the best compensated in the country. It is using technology and other tools to make its network more efficient – and during the latest quarter, direct labor hours per day declined 5.1%.

This holiday season, UPS will offer Saturday delivery across the United States and send oversized, bulky and heavy packages via Roadie – a crowd-sourced, same-day delivery company it is buying this quarter.