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Healthcare sector fuels UPS gains

UPS has been investing heavily to modernize its network and the investments are starting to pay off.

UPS is the world’s largest package delivery company, with a market capitalization of $95.6 billion. It operates in 220 countries and territories and employs 481,000 people. Its operations include a cargo airline, freight-based trucking, and 5,000 franchised UPS stores.

The share price is up 10% since late July, fueled by strong second-quarter earnings that beat expectations.

In releasing the results on July 24,  UPS Chief Financial Officer Richard Peretz predicted that second-half results will be even stronger. Of particular note in the quarter is that UPS reported strong growth in its higher margin healthcare logistics segment.

Healthcare logistics refers to the distribution of supplies and consumables to hospitals, doctors, and pharmacies, as well as the just-in-time delivery of temperature-sensitive drugs, biologics, and organs and tissues used in transplants.

UPS Ontatio sorting
A UPS sorting facility at Ontario International Airport in Ontario, California. Credit: UPS

Getting this right means connecting medical products to the point of care. By one estimate, the global market is huge and growing by 4% a year, with a value of US$81 billion in 2019.

This sector is a place where new technologies play a big part. Artificial intelligence software (AI), which learns as it goes, is helping plan deliveries. The Internet of Things (IoT) is connecting the software to handheld devices. Blockchain technology is creating shared platforms so hospitals, doctors, suppliers, and shippers can see where the supplies are in the chain.

UPS is also taking U.S. air delivery business from rivals. Its NextDay Air volume surged an unexpected 30% in the latest quarter, as Amazon and other large retailers adopted one-day shipping.

Net income in the quarter grew 13.5% to $1.69 billion, or $1.94 per share. Revenue grew 3.4% to $18.05 billion.

UPS left the dividend unchanged at an annual rate of $3.84. At the current share price, the yield is 3.45%. UPS has been investing heavily to modernize its network and the investments are starting to pay off.

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Adam Mayers writes about investing and personal finance. He is a contributor to the Globe & Mail’s Globe Advisor and a contributing editor to Gordon Pape's Internet Wealth Builder newsletter. Adam was Business Editor and investment columnist at The Toronto Star and is the author of six books.

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