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UPS, FedEx thrive in pandemic world

Booming online shopping and stay- at-home trends are creating sustained growth

The economy has evolved with three distinct tiers this year with the tier playing to the stay-at-home trends doing just fine.

This includes building, home improvement and gardening centres who have boomed as homeowners look at their properties with fresh eyes. Office supplies and furniture are in demand as firms extend work from home. Everyone needs telecom to work, stream entertainment and communicate with friends and family. Online shopping in all forms has benefitted, as have the companies that ship and deliver goods. The trends seem likely to continue.

Here’s a look at two global courier companies who are having a strong year.

Fedex (NYSE: FDX): FedEx is a global logistics and shipping company with operations in 220 countries and 440,000 employees. Pre-pandemic it was the largest cargo carrying airline in the world and in the top 10 by fleet size.

The question earlier this year was whether the e-commerce bump was temporary or long-term?

Fedex has answered that by blowing the doors off revenue and profit targets in its fourth quarter, reported Sept. 16. The pandemic has created unprecedented demand for the shipping of consumer goods purchased online. Business shipments have been surprisingly strong too. The shares have been on a tear and at the time of writing are up 61% year to date and 157% from their March low to US $254 at the time of writing.        

Three energizers drove the results. Demand boomed, the company raised prices, and fuel costs were down by a third year-over-year.

Quarterly revenue rose 13% to US$19.3 billion, while adjusted profit of US$1.28 billion was 60% higher than the same period a year ago. The average daily package volume jumped 31%, led by what CEO Fred Smith called “surges in residential deliveries.” FedEx hired more workers and boosted Sunday delivery. 

Even so, Fedex is not making any forecast about what lies ahead, though it said it is well placed to benefit from a global recovery. Its dividend has increased every year since 2002, but this year may be the exception. The $2.60 annual rate yields 1.02% at current prices.

United Parcel Service (NYSE: UPS): FedEx and UPS go head to head in most areas, with UPS about double FedEx’s size as the world’s largest package delivery company. Its market capitalization of US$137.9 billion is more than double that of FedEx. Globally, it employs 481,000 people and its operations include a cargo airline, freight-based trucking, and franchised stores. Its largest customer is Amazon.

In its latest quarter, reported July 30, UPS also exceeded estimates for profit and revenue. It also increased prices, benefitted from lower fuel costs, and saw a big jump in healthcare related shipping, an area where it has focused a lot of attention. The pandemic accelerated shipments of face masks, medical equipment, as well as food. That offset the higher cost of e-commerce home deliveries. Dropping packages on residential doorsteps is less profitable than delivering to businesses, as it requires more truck miles and stops per route.

Revenue was 13.4% higher at US$20.46 billion and net income was 4.9% higher at US$1.77 billion or US$2.13 per share.

The stock is up 37.2% year-to-date and 87% from the March low tyo the current level of US $167.65. The $4.04 dividend yields 2.53% at current prices, better for income seekers than FedEx. While the dividend has increased in each of the last 10 years, 2020 may be the exception.

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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