UPS' latest financial statements reveal why the 111-year-old logistics giant is becoming a stock market darling again

Transportation3 min read

• UPS is regaining respect among investors after its impressive earnings report on July 24.
• UPS ended an 11-quarter slump in operating margins and boasted record profits.
• It's a turning point for the logistics giant after months of analysts sounding the alarms on Amazon's growing threat to UPS' business.
• Visit Business Insider's homepage for more stories.

UPS announced a slew of new services this week ahead of its earnings - seven-day delivery, increased automation, a new delivery pick-up/drop-off partnership with CVS and Michael's.

And then, even as international air freight dips and the $800 billion trucking industry struggles, UPS reported record profits on July 24. Much of that growth came from a boon in next-day air volume.

Throughout this year and last, investors had soured on UPS. Margins at UPS were weakening. More and more banks were highlighting the threat of Amazon, which has been quickly in-housing its delivery services. And the package giant's fellow bellweathers in logistics were also seeing their stocks dip.

Read more: UPS just formed its own drone operation company - and it's another edge against Amazon, FedEx, and Uber in the quest for unmanned deliveries

But now, that's turning around. UPS' stock hit a three-month high after earnings, trading at $114.39 per share. It tumbled to below $90 per share in Dec. 2018, among its lowest in five years, and climbed up again before sinking to around $92 in late May.

Ken Hoexter and Ariel Rosa, two research analysts at Bank of America Merrill Lynch, wrote in a July 25 research note to investors that they expect share prices to climb to $130. They wrote UPS' network investments and volume upticks "equal a powerful story," and upped UPS from "Neutral" to "Buy."

UPS' overall operating margin is finally on the rise after 11 quarters of decline, Hoexter and Rosa noted. Along with the threat of Amazon, the company's operating margin have frustrated investors for years, as Business Insider recently reported.

UPS filings, Rachel Premack/Business Insider

The biggest win in UPS' earnings come from its boost in next-day air freight. As consumers demand faster deliveries, UPS has significantly scaled up its cargo lift.

UPS CFO Richard Peretz said on the July 24 earning call that UPS is "seiz(ing) the market opportunities with large e-commerce shippers who are early adopters of faster delivery to their customers."

UPS filings, Rachel Premack/Business Insider

UPS' next-day air volume has jumped by 30.3% - a considerable bump.

And UPS is only continuing to invest in fast air cargo delivery. UPS is adding 44 new aircraft between 2017 and 2022 - and 11 planes this year alone.

UPS CEO David Abney told investors on July 24 the multi-year addition will create "more than 10 million pounds of additional air capacity in the network, the largest air capacity expansion in the industry in recent history."

Get the latest Bank of America stock price here.

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