UPS Ships Fewer Packages as Pandemic Boom Wanes

“Many of our bricks-and-mortar enterprise customers reopened their stores and as economies reopened, customers went back to those stores,” Chief Executive

Carol Tomé

said Tuesday.

Profit still rose more than 45% on an adjusted basis, helped by an increase of 15.3% in revenue per piece shipped and tighter monitoring of costs. Both revenue and earnings topped analyst projections.

Still, the outlook for slower growth weighed on shares, which fell nearly 9% in recent trading to $191.13. They are still up more than 13% this year.

The results come as Ms. Tomé pursues a “better, not bigger” strategy, where the company is being more selective about which customers it does business with and what items it ships. In addition to raising rates and implementing surcharges, UPS has been increasing contracted shipping prices for large shippers, in some cases as high as 30%, to improve its bottom line.

“We are changing the growth targets of the company and are no longer focused solely on volume growth,” Ms. Tomé said Tuesday.

UPS does see slower growth ahead, as it comes up to difficult comparisons from last year. For the remainder of the 2021, UPS expects sales growth of 5.4%, including 8.2% in the U.S.

The company has been taking on more small- and medium-size shippers, who tend to be more profitable than larger clients. The company is also benefiting from the broader reopening of economies and rebounding shipments between businesses, which are a more profitable business line since it yields more packages per shop and decreases delivery costs. Business-to-business shipments rose 25.7% domestically in the second-quarter versus last year, while shipments to homes fell 15.8%.

The growth of shipments to business shows that there is a shift in the economy back to stores and away from online. “It’s a signal for us that the doors are open again and people are out shopping,” UPS Chief Financial Officer

Brian Newman

said.

The changes have helped UPS boost its operating margin, which hit 11.6% on an adjusted basis in its large U.S. segment versus 9.3% a year ago. The company is projecting operating margin across the company of 12.7% for 2021.

In addition, the changes have contributed to better on-time shipping performance for UPS than its main rival

FedEx Corp.

, which has been affected by labor shortages and high shipping volumes. According to ShipMatrix Inc., a software provider that analyzes shipping data, UPS on-time performance was 95.6% in June compared with 87% at FedEx across all services. Both companies were slightly above 92% in the same period last year.

For the period ended June 30, UPS logged profit of $2.7 billion, or $3.05 per share, compared with $1.7 billion, or $2.03 a share, a year earlier. Adjusted for items including restructuring costs and a benefit from its recent sale of its freight business, per-share earnings were $3.06.

Revenue came in at $23.4 billion.

Analysts recently polled by FactSet were expecting UPS to post per-share earnings of $2.81 on revenue of $23.2 billion.

UPS is turning more attention to the critical holiday shopping season. Ms. Tomé said that the parcel industry is likely facing a capacity shortfall of five million packages a day at points between Thanksgiving and Christmas, which is down from as much as seven million during the holidays last year.

“It has gotten a little better because people have added capacity,” she said.

One challenge for the holidays is adding enough workers to manage the surge of packages. UPS says that it has enough workers now to handle its shipping loads, but it has raised wages in some markets to attract enough workers. “It is a tight labor market,” Mr. Newman, the finance chief, said.

Write to Paul Ziobro at Paul.Ziobro@wsj.com