E Portfolio Review: UPS, Tractor Supply, Facebook, Canadian National

UNWRAPPING UPS PROFITS

UPS (UPS) reported second quarter revenues rose 13% to $20.5 billion with net income and EPS each up 5% to $1.8 billion and $2.03, respectively. These results were better than management expected, driven in part by the changes in demand that emerged from the pandemic. This included a surge in residential volume with U.S. domestic average daily volume increasing a record 23%, reaching 21.1 million packages per day. Business to consumer shipment growth was up 65% due to strong demand for residential delivery as a result of shelter in place restrictions, retail closures and stimulus checks. International average daily volume grew 10%, driven by strong outbound demand from Asia and an increase in cross-border e-commerce volume in Europe.

Free cash flow nearly tripled during the first half of the year to $3.9 billion with the company paying $1.7 billion in dividends, representing a 5% increase over the prior year period. The dividend is a hallmark of UPS financial strength with the dividend reflecting 50 years of stability and growth. UPS maintains a strong credit rating which provides financial flexibility.

Carol Tome, the new CEO, is focused on improving operating margins and return on invested capital over the longer term to help UPS “get better, not bigger” which will increase cash flow generation and shareholder returns. During the second half of 2020, UPS expects a more gradual economic recovery until the virus spread is controlled and a vaccine is widely available.

During the past three months, UPS’ stock soared over 60% with the stock now appearing fully valued. This has prompted us to unwrap some UPS profits for the first time in 15 years by trimming our position. 

HARVESTING TRACTOR SUPPLY PROFITS

Tractor Supply (TSCO) plowed up exceptional growth in the second quarter with sales jumping 35% to $3.2 billion, net income growing 54% to $339 million and EPS climbing 61% to $2.90. Comparable store sales growth increased an impressive 30.5% with strong double-digit growth across all product categories and geographic regions. The company gained new customers at the fastest rate in company history with 4.3 million new customers during the quarter.

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William K. 10 months ago Member's comment

It is interesting that such different organizations are all doing well, en CN with less profits is still doing well, even if not AS WELL as before. If my incomme drops to only ten times what it takes to support my lifestyle, from 25 times what it takes, do I even come close to suffering?

The good news is still that quite a few are doing well.

Thanks for letting us know.