UPS brings early cheer to stakeholders with earnings report

UPS today announced diluted earnings per share of $1.32 for the third quarter 2014, a 13.8% improvement over the prior year period. Operating profit increased 8.3%, resulting from balanced growth across all three segments.

Daily packages in the U.S. were 6.9% higher as demand from both B2C and B2B customers improved. International Export shipments increased 9.4% with strong growth in both Asia and Europe. UPS delivered 1.1 billion packages around the world, up 6.9% over the third quarter 2013.

As noted in LM earlier this week, the freight transportation and logistics titan rolled out rate increases for 2015 that are set to take effect on December 29, 2014.

Jerry Hempstead, president of Orlando, Fla.-based Hempstead Consulting, noted that today’s announcement is a reflection on the strength of the economy.

“When one considers the positive trend of USPS Priority Mail products, the strong quarter Fedex announced September 17 for their most recent quarter, the results of United Parcel for their third quarter makes one consider that the shipping business is strong all over the planet,” he said.

David Abney, UPS chief executive officer, said his company is “staying ahead of the market,” and generating positive operating leverage.

“We continue making investments in technology and expanding our capabilities around the world,” he added.

U.S. Domestic Package
U.S. Domestic revenue increased to $8.7 billion, up 5.3% over the third quarter 2013. Daily package volume improved 6.9%, led by gains in UPS Ground and Deferred products up 7.7% and 5.9%, respectively. E-commerce continued to drive strong B2C growth, while B2B deliveries were also higher this quarter.

Operating profit was $1.3 billion, up 7.8%. Operating margin expanded 30 basis points to 14.7%. The segment experienced positive operating leverage as investments in new technology and capacity helped lower costs.
Total revenue per package declined 1.5% as base rate improvements were offset by changes in customer and product mix. UPS SurePost shipments increased more than 50%, contributing to the mix change.

During the quarter, UPS announced the expansion of its Access Point alternate delivery solution to the New York City and Chicago areas. Plans were announced to add locations in other U.S. cities, in addition to more than 4,400 existing UPS Stores, by the end of 2015.

International Package
International revenue increased 5.5% to $3.2 billion on daily package growth of 6.7%. Export products jumped 9.4% with gains from all regions of the world. Shipments out of Asia grew 16% and Europe was up 14%.

Operating profit improved 10.3% to $460 million. Operating margin expanded 70 basis points over the prior year period, to 14.5%. Revenue and cost initiatives implemented during the quarter contributed to the margin improvements.

Currency-neutral revenue per package declined 1.0% due to changing product mix and continued strength in shorter trade lanes. Non-premium products continue to outpace premium, putting pressure on yield.

“UPS appears to be clicking on all cylinders and this is in spite of the tremendous investment they are making to improve and expand infrastructure and IT to avoid issues that they experienced last Holiday season,” noted Hempstead.

He added that the one service that stands out is Sure Post with 50% growth.

“This is their hybrid postal product where the USPS makes the ultimate delivery to the consumer via their Parcel Select offering,” he said. “UPS and Fedex are both seeing increased acceptance and utilization of the hybrid solution, although FedEx has had some of its results muted by the decision of Amazon to divert some of its former Smartpost traffic directly to the USPS and become their own ‘consolidator.’”

According to Hempstead, both FedEx and UPS are adding significant manpower for the peak season, but like last year, much of service consistency lies in the hands of “Mother Nature” in late November and December.