UPS posts solid second quarter results despite flat volumes

Compared to the second quarter of 2010, which saw a 71 percent annual gain in earnings per share for UPS, this year’s second quarter might be viewed as being pale in comparison. But a close look at the numbers points to another strong earnings performance for Big Brown.

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Compared to the second quarter of 2010, which saw a 71 percent annual gain in earnings per share for UPS, this year’s second quarter might be viewed as being pale in comparison. But a close look at the numbers points to another strong earnings performance for Big Brown.

Second quarter revenue for the company—at $13.2 billion—was up 8.1 percent annually, and operating profit—at $1.7 billion—was up 21.1 percent. Earnings per share—at $1.05—saw a 25 percent year-over-year increase. This was the company’s highest EPS ever recorded in the second quarter. Total operating profit—at $1.698 billion—was up 21.1 percent.

Average daily volume of 14.9 million packages was up 1.0 percent, and consolidated quarterly volume of 957 million packages was also up 1.0 percent. Consolidated revenue per piece—at $11.21—was up 7.1 percent, matching last year’s percentage gain.

“There were impressive results this quarter, however, it was not without some difficulty due to the uneven nature of the global economy,” said UPS Chairman and CEO Scott Davis on an earnings call this morning. “While fuel prices have come down some and Japan appears to be recovering high unemployment and weak consumer confidence continue. Government debt issues only add to the uncertainty. 2011 has been a difficult year to forecast economic growth. Given all the uncertainty in the U.S. economy, second half U.S. GDP growth could be anywhere between 1.5 percent to 3.5 percent. Economic growth expectations have slowed from where they were at the start of 2011.”

Davis added that UPS is not sitting back waiting for the economy to improve or pending U.S. trade agreements to be signed, explaining UPS is creating its own opportunities to keep moving in the right direction.

UPS’ U.S. domestic package revenue at $7.74 billion was up 6.4 percent, with domestic package volumes at 12.6 million per day per day up 0.1 percent. Average revenue per piece was up 6.3 percent at $9.57. Operating profit of $966 million was up 29.1 percent.

Supply chain and freight revenue at $2.315 billion was up 7.0 percent, which represents the best quarterly profit for this group. And operating profit of $235 million was up 76.7 percent.

International package revenue at $3.139 billion was up 13.3 percent, with average daily package volume—of 2.3 million—up 6.2 percent. Average revenue per piece on the international side was up 6.3 percent at $20.13. International package operating profit of $497 million was down 4.6 percent.

UPS growth strategies, coupled with its focus on quality of revenue and network efficiencies, led by technological advancements resulting in fewer labor hours and miles driven, served as the drivers for solid quarterly results, said UPS CFO Kurt Kuehn on the call.

Kuehn noted that domestic volumes were “flat as a result of the slow U.S. economy, with UPS maintaining a continued focus on revenue management.” Even with flat volumes, [domestic] revenue per piece was up more than 6 percent, due to higher base rates and higher fuel surcharges, with stronger base rates responsible for about half of the improvement, according to Kuehn. 

Savings from network efficiency improvements partially offset cost increases associated with wage inflation, pensions, and 401(k) matches, said Kuehn.

While shipments were largely flat overall for UPS, Jerry Hempstead, president of Hempstead Consulting, pointed out that the domestic revenue increase was all attributable to the company’s General Rate Increase, the dimensional pricing rule change, increases in accessorials, and fuel surcharges.

“Shipments were not up, and that is a problem—in particular ground parcel shipments [down 0.1 percent per day with a daily average of 10,604],” he said. “UPS and FedEx have been touting ‘yield improvement’, which translates to shippers as paying more for the same shipments, with the other concern being a slow down in the growth rate in Asia. That is major. These flat volumes are a reflection of economic stagnation.”

Another area of concern observed by Hempstead was that DHL made its last domestic pick up on January 30, 2009 and “gifted” that business to UPS and FedEx. He explained that this means the growth numbers for UPS and FedEx were artificially inflated until January 30, 2010. But with 12 months of no true growth, Hempstead said it stands to reason that the annual comparisons would begin to improve in the form of increase package counts, which directly reflect economic growth, but this has yet to happen.


About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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