UPS Q1 revenue up 1.4 percent to $14.0 billion

Transportation and logistics bellwether UPS began 2015 in solid fashion with first quarter revenue up 1.4 percent at $14.0 billion and operating profit up 11 percent at $1.7 billion. Earnings per share were up 14 percent at $1.12, which exceeded Wall Street expectations of $1.09, while revenue was shy of the Street’s $14.27 billion estimate.

UPS cited revenue management actions and strong international shipment growth as drivers for its operating improvement gains.

“UPS produced solid performance across all segments,” said UPS CEO David Abney on the company’s earnings call today. “Earnings per share increased more than 14 percent, led by international. This segment continues to produce positive momentum, as our unmatched integrated network creates high returns and significant value for customers around the world. The U.S. domestic segment performed as planned. Our actions on revenue management and pricing drove revenue-per-piece higher in the first quarter. The pace of volume moderated as we chose to forgo some lower-yielding opportunities.”

In the fourth quarter, UPS delivered 1.1 billion packages, which marked a 2.9 percent annual increase, with European export growth leading the way with a 9.4 percent gain.

Revenue for UPS’s U.S. domestic package at $8.8 billion was up 3.8 percent, with daily package volume up 2.4 percent at 14.768 million and deferred air and ground seeing 12.3 percent and 2.0 percent gains, respectively.

Consolidated revenue per piece at $10.56 was down 1.4 percent, with U.S. domestic packages and international package averages at $9.47 (up 1.3 percent) and $16.48 (down 10.2 percent), respectively. UPS SurePost, its economy ground service for delivery to residential locations, saw a 7 percent first quarter gain.

International package revenue was down 5.0 percent to $2.97 billion, while operating profit saw a 14 percent uptick to $498 million. Daily export volumes 2.702 million were up 4.6 percent, with daily domestic international packages up 3.1 percent at 1.577 million, and daily export international packages up 6.7 percent at 1.125 million.

Revenue for UPS Supply Chain and Freight rose 1.3 percent to $2.193 billion, due to gains for both Distribution and UPS Freight, while operating margin expanded to 6.9 percent with an operating profit of $151 million. Revenue on the LTL side for UPS Freight was up 2.3 percent, due to gains in LTL and Ground Freight pricing products, while lower fuel surcharges factored into its revenue growth rate. Daily LTL shipments were up 3.5 percent annually at 40,900, and weight per shipment dropped 3.4 percent to 1,040 pounds.

UPS CFO Kurt Kuehn said on the call that the first quarter results showed good growth across all segments, with the U.S. business performing well in successfully implementing a disciplined pricing strategy, with the International segments continuing to produce strong momentum with a balanced approach to pricing and operating performance. And Supply Chain and Freight, he said, performed well amid the disruptions caused by the West Coast port labor situation.

Kuehn said that in the first quarter UPS generated $2.4 billion in free cash flow, continuing its strength in providing flexibility to fund its growth projects. 

When asked about yield management and pricing initiatives for the quarter, Kuehn said that even with the headwinds of fairly substantial fuel surcharges, UPS showed substantial gains, with its recent dimensional pricing changes serving as one piece of that.

“Pricing has been a real positive story,” said Alan Gersenhorn, UPS Executive Vice President and Chief Commercial Officer, on the earnings call. “We are 200 basis points better than last year’s annual growth rate, even with a much larger fuel drag. The impact came in at the high end of our expectation range, and the dim weight along with other revenue management practices contributed to that.”

In regards to Peak Season pricing, he explained UPS has a comprehensive strategy in place that has already begun to increase revenue from customers that surge during Peak Season and will also drive additional operating expenses. The pricing increases will generally apply to residential products in high-cost areas and will vary by customer. 

Jerry Hempstead, president of Orlando, Fla.-based Hempstead Consulting, said that quarterly shipments were strong in every respect for UPS, specifically SurePost.

“The greater the growth in this service the more efficient the product becomes,” he said. “It is obvious in the data that these packages have a low price point but great (and improving) yield.”

He noted that it was a surprise that the company’s changes in dimensional pricing did not lead to explosive top line revenue growth, and also added that two of the three months in the quarter had the effect of its new fuel surcharge tables.

“UPS is managing its book of business well but the company but there should be fear and trepidation on the part of shippers with the direction of pricing and announcing that they are walking away from accounts which present an unacceptable yield in their opinion,” he said. “At the end of the day, as far as I’m concerned, there are two most important things to look at: first and foremost growth in packages. You can always tinker with the operation to make packages yield, but without an ever-increasing package count, you get in trouble. The second thing is profit. When you have that you can do all kinds of creative stuff, which UPS is doing and has tried to do. Of course they raise the dividend and some goes there. They buy back shares, which helps the earnings per share number. But they are also investing in supply chain solutions for the medical field which is ever growing. They have made significant investments in the last 12 months in their domestic infrastructure which has helped improve service especially at Christmas, and they are making investments in IT to make the switch run more efficiently and also in more fuel efficient vehicles.”