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Investing.com -- United Parcel Service (NYSE:UPS) shares have surged 10% at the open on Tuesday after the delivery giant reported third-quarter earnings that significantly exceeded analyst expectations, despite ongoing volume challenges in its domestic segment.
The package delivery company posted adjusted earnings of $1.74 per share for the third quarter, handily beating the analyst consensus of $1.30. Revenue came in at $21.4 billion, surpassing estimates of $20.84 billion, though this represented a decline from the same period last year. The company also provided upbeat fourth-quarter guidance, projecting revenue of approximately $24 billion, above analyst expectations of $23.83 billion.
"We are executing the most significant strategic shift in our company’s history, and the changes we are implementing are designed to deliver long-term value for all stakeholders," said Carol Tomé, UPS chief executive officer. "With the holiday shipping season nearly upon us, we are positioned to run the most efficient peak in our history."
UPS’s U.S. Domestic segment saw revenue decline 2.6% to $14.22 billion, primarily due to an expected drop in volume, though this was partially offset by higher revenue per piece and air cargo revenue. The International segment performed better, with revenue increasing 5.9% to $4.67 billion, driven by a 4.8% increase in average daily volume.
Supply Chain Solutions revenue fell 22.1% to $2.52 billion, largely due to the divestiture of Coyote in the third quarter of 2024. However, this segment posted strong adjusted operating margins of 21.3%.
For the fourth quarter, UPS expects non-GAAP adjusted operating margin of approximately 11.0% to 11.5%. The company confirmed its full-year 2025 capital expenditure target of approximately $3.5 billion and dividend payments of around $5.5 billion, subject to board approval.
The strong quarterly performance and positive outlook come as UPS implements significant strategic changes aimed at improving efficiency and long-term growth.
"3Q delivered a clean beat, with stronger-than-expected profitability and guidance pointing to accelerated margin recovery," said Truist analyst Lucas Servera in a note reacting to the report. "With guidance now tracking above both our and Street estimates, we believe the setup into peak season looks increasingly favorable."
Meanwhile, Raymond James analyst Patrick Tyler Brown stated that while the strong Domestic performance was primarily driven by cost execution, "the Domestic Ground segment when it came to the top line as volumes (-12.0% y/y vs. RJe -13.2%) and yields (+9.8% vs. RJe +7.0%) came in better than our expectations."