UPS delivered thanks to high demand for home delivery
United parcel service (NYSE: UPS) ended 2020 on a positive note as demand for shipping during the holidays led to better than expected results. It has been a good year to be in the delivery business, and UPS has shown great results in 2020.
In this video by Motley Fool Live recorded on February 4, Industry Focus host Nick Sciple and Motley Fool contributor Lou Whiteman discussed the recently completed quarter and looked ahead to 2021.
Nick Sciple: You mentioned earlier, UPS just reported profit, e-commerce demand through the roof due to lockdowns and people don’t want to leave their homes. What do we see from UPS in their revenue report?
Lou Whiteman: I think anyone who has a recycle bin probably knows exactly what’s going on with UPS. Number of Amazon packages and other cartons that you have there. Indeed, UPS had an excellent report in the fourth quarter. They beat $ 2.66 a share on earnings of $ 24.9 billion in revenue. It was more than consensus, and consensus had grown depending on what FedEx and others have said so. The pandemic has ended up being good and bad. We’ve seen B2C volumes skyrocket, the B2B lag, but the net-net is that the big increase in B2C has made up for much of the weakness they had in other parts of their business. The National Plans division saw a 17.4% year-over-year increase in revenue, the highest quarterly operating profit in company history. It’s the right business right now, this door-to-door delivery business, and it’s really successful and we’ve seen it right across the line with these logistics companies.
Scenario: Just to point out, when you say B2C business versus B2B business, what are the distinctions there?
White: B2C, business to consumer, is bringing the package from your home to my home. B2B, it doesn’t have to be two companies, it can just be warehouse-to-warehouse transportation for a customer, but it’s a commercial shipment that doesn’t end in the last mile to at home. It’s the simple way of thinking.
Scenario: Traditionally, UPS has focused on this business-to-business shipping. Seeing this big shift towards business-to-consumer with the rise of electronic commerce, the changes in the way businesses operate, how does this setup for UPS as a business? Obviously, given that its historical activity was around its business-to-business shipping, are these benefits applicable in this business-to-consumer world?
White: In the ideal environment, business-to-business tends to be much more profitable. There are a lot less costs. The last mile cost us dearly. This tends to reduce business-to-consumer margins. The interesting thing is that UPS isn’t really caught up in the post office model where you have to go to every house, but for the most part these days the last mile is to every house. The advantage in B2B, and what is interesting is that you can be more selective, you can play in the fields you want. For UPS, it’s about whether it’s a refrigerated system, where it’s urgent, areas like this where you can pick your battles and try to find some headroom. It’s part of the business. Yes, they’ve been in B2B forever, but most of their growth over the past decade has been to develop this business-to-business in the areas they want. One of the big questions for this company in 2021 is how is it going to normalize? What does this mean for the margins, or are we stuck in this rut for a while because they really want to see this B2B come back. They want this aspect of their business to perform better.
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