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Earnings Results: UPS stock rockets toward a record after big profit and revenue beats, 49% dividend boost

Shares of United Parcel Service Inc. soared Tuesday toward their second-biggest-ever gain, after the package delivery giant reported fourth-quarter profit and revenue that were well above expectations and boosted its quarterly dividend by 49%.

The company UPS, +12.65% swung to net income of $3.09 billion, or $3.52 a share, from a loss of $3.35 billion, or $3.84 a share, in the same period a year ago.

Excluding nonrecurring items, adjusted earnings per share rose to $3.59 from $2.66 a year ago, beating the FactSet consensus of $3.10. Last year’s results excluded $5.66 a share in defined-benefit plan charges.

Revenue grew 11.5% to $12.77 billion, above the FactSet consensus of $27.06 billion, fueled by strength in its domestic and international businesses.

Operating expenses growth was 4.5% to $23.88 billion, slower than revenue growth, to lift operating profit as a percentage of revenue to 14.0% from 8.2%.

The stock ran up 13.7% in morning trading, putting it on track for its second-biggest one-day gain in its history, just behind the record 14.4% rally on July 30, 2020. The stock also eclipsed its Jan. 7, 2022 record close of $218.16.

Among UPS’s business segments, U.S. Domestic Package revenue increased 12.4% to $17.70, beating the FactSet consensus of $14.21 billion, and International Package revenue rose 13.1% to $5.40 billion to top expectations of $4.66 billion. Supply Chain & Freight revenue increased 6.7% to $4.68 billion, also above analyst projections of $4.24 billion.

Operating margin in its largest U.S. Domestic Package segment improved to 11.9% from 7.9% a year ago.

“They obviously continue to see strong demand for their services, which we also expect will continue given the ease of ordering online vs. going to the store,” Cowen analyst Helane Becker said in a “quick-take” note to clients.

UPS also declared a quarterly dividend of $1.52 a share, up 49% from a year ago. The new dividend will be payable March 10 to shareholders of record on Feb. 22.

Based on current prices, the new annual dividend rate implies a dividend yield of 2.64%, which compares with the current yield for rival FedEx Corp.’s stock FDX, +2.77% of 1.17% and the implied yield for the S&P 500 index SPX, -0.20% of 1.39%.

Cowen’s Becker said she was expecting a dividend increase, but the new dividend is above her projection of $1.40 a share.

Chief Financial Officer Brian Newman said on the post-earnings conference call with analysts that supply chain challenges and the emergence of the omicron COVID-19 variant weighed on global economic growth late in the fourth quarter, leading to average daily volume in the domestic business to be below expectations, at 25.2 million packages per day.

But gains in revenue quality, helped by the company’s “better not bigger” strategy, and improved productivity led to “outstanding” overall results for the domestic business.

For 2022, Chief Executive Carol Tomé said on the call that revenue is expected to be about $102 billion, which compares with the FactSet consensus of $100.15 billion. Operating margin is expected to improve to 13.7%, from 13.2% in 2021.

The company expects capital expenditures of $5.5 billion, to spend $5.2 billion on dividends and to buy back at least $1.0 billion worth of its shares.

UPS’s stock has run up 9.1% over the past three months, to outperform the Dow Jones Transportation Average DJT, +1.45%, which has slipped 1.6%, and the Dow Jones Industrial Average DJIA, -0.07%, which has eased 1.8%.

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