Shipping and receiving stalwart United Parcel Service (NYSE:UPS) managed to bring some joy in the consumer economy space, posting encouraging results for its third quarter. Fundamentally, the company succeeded in implementing pricing adjustments to bolster corporate profits. As a result, UPS stock gained 3% on Tuesday, though it pared back some returns in the early afternoon session.
On the top line, UPS generated revenue of $24.2 billion, representing a year-over-year lift of 4.2%. According to Reuters, this tally just missed the consensus estimate of $24.3 billion. Primarily, “consolidated average daily package volume declined 2.1% to 22.9 million in the quarter.” However, as the Wall Street Journal noted, “revenue per piece shipped rose 8.6%, offsetting a 2.1% decline in the volume of packages.”
On the bottom line, WSJ reported that earnings “came in at $3.1 billion, up from $2.3 billion a year ago. Stripping out one-time items, adjusted earnings were $2.99 a share, topping analyst expectations of $2.84 a share, according to FactSet.”
Additionally, management “reaffirmed its full-year revenue forecast of about $102 billion and adjusted operating margin of around 13.7%,” per Reuters. That helped drive enthusiasm for UPS stock amid a tough environment for the consumer economy.
Another star in the courier’s upbeat earnings report centered on cost controls. While UPS and others scrambled to meet resurgent demand in the early phase of the pandemic, the industry now finds itself saddled with excess capacity. The dynamic forced UPS to adopt a “better, not bigger” strategy, but it is transitioning to a “bigger and bolder” approach with plans to divert more resources toward productivity.
UPS Stock Catches Its Breath During the Storm
While acknowledging the “very dynamic” macro environment, UPS chief executive Carol Tomé stated, “we are on track to achieving our 2022 financial targets by executing our strategy and controlling what we can,” per the company’s earnings release.
“Third-quarter results fit with view that UPS got ahead of the slowing freight cycle and has a better grip on costs than FedEx,” Cowen analyst Helane Becker said in a research note. While reassuring for UPS stock at the moment, significant challenges await the underlying industry.
Last month, FedEx (NYSE:FDX) CEO Raj Subramanian sounded the alarm about an imminent global recession. Per the UPS rival’s preliminary quarterly data for its fiscal Q1, the results “were adversely impacted by global volume softness that accelerated in the final weeks of the quarter.”
As the WSJ stated, uncertainty brews in the economic outlook for the U.S. While rising interest rates may tame consumer spending, such an action may create a deflationary effect on the broader economy. According to a separate Reuters report, the federal government acknowledges potential liquidity problems stemming from rising rates.
In other words, inflation will likely hurt consumer spending due to the erosion of purchasing power. However, a shrinkage of the money supply may erode the labor market. Either way, the net impact to UPS stock may be the same: a reduced total addressable market. Therefore, shares may have lost some of their initial enthusiasm as investors digest broader realities.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.