UPS reports 6 percent increase in Q4 2011 revenue

Earlier today, transportation and parcel bellwether UPS reported that fourth quarter revenue jumped 6 percent annually to $14.2 billion, and adjusted operating profit was up 17.3 percent at $2.024 billion. Earnings per share at $1.28 saw a 21 percent improvement, topping Wall Street estimates of $1.26 per share.

The holiday shopping season and e-commerce served as drivers for strong quarterly performance, with UPS officials noting that global daily volume during the holiday season was more than 25 million packages on five different days, with two days at more than 27 million. They added that during peak season, UPS delivered 480 million packages, a performance that was paced by e-commerce activity.

In an earnings call earlier today, UPS CEO Scott Davis said that during the fourth quarter UPS experienced its biggest peak season ever, with its near 500-million package delivery output between Thanksgiving and Christmas. He added that UPS finished 2012 with record earnings per share of $4.35, free cash flow exceeding $5 billion, and a new high in return on invested capital.

“In the U.S., we saw robust growth in e-commerce while traditional retailers experienced mixed holiday sales,” said Davis. “Continued growth in B2C (business-to-consumer) contributed significant growth in UPS residential shipments. This rapidly growing market segment enables more and more opportunities for consumers to experience the unique solutions provided by UPS.”

For the fourth quarter, average daily package volume of 182.2 million packages was up 3.8 percent, with total U.S. domestic packages averaging 15.6 million and total international packages up 2.6 percent at 2.6 million packages per day. U.S. domestic package next-day air saw a 1.0 percent decline in daily volume at 1.305 million packages per day while deferred—at 1.314 million packages—and ground at 13.068 million packages—were up 12.3 percent and 3.5 percent, respectively.

Revenue for UPS’s U.S. domestic package at $8.67 billion was up 7.3 percent.

Consolidated revenue per piece at $10.31 was up 2.9 percent, with U.S. domestic packages and international package averages at $8.91 (up 3.4 percent) and $18.75 (up 2 percent), respectively.

UPS CFO Kurt Kuehn said higher base rates and fuel surcharges were somewhat masked by a decline in weight per shipment—by nearly 3 percent annually—and changes in both customer and product mix.

Supply chain and freight revenue at $2.343 billion was up 2.1 percent, and adjusted operating profit at $199 million was up 11 percent. Operating profit fell 88.9 percent to $22 million, due to a company mark-to-market adjustment for pension plans.

Shipments for UPS Freight, the company’s less-than-truckload unit, were up 8.9 percent in revenue per hundredweight, and UPS Freight revenue at $632 million was up 9 percent.

International package revenue at $3.153 billion was up 3.5 percent, and International Package operating profit at $334 million was down 31.4 percent.

UPS CFO Kuehn said on the call today that UPS achieved record annual revenue of $53.1 billion in 2012, which was up 7.2 percent and also surpassed the 4 billion package mark for a 1.8 percent uptick on consolidated package volumes for 2012.

“All of this was accomplished during an uneven period of global economic conditions,” said Kuehn.

In describing the company’s cash flow position, Kuehn said that in 2011 the company generated more than $5 billion in free cash flow after making capital expenditures of $2.0 billion and pension contributions of $1.4 billion and $2.0 share buyback effort.

Jerry Hempstead, principal of Hempstead Consulting, said that the biggest admission on the call by UPS was that the star its fourth quarter performance was its new Sure Post product offering, which is a contract-only service that combines the consistency and reliability of the UPS Ground network, from pickup through transferring to the Post Office, with the cost benefits of using the United States Postal Service (USPS) for final delivery.

“All the talk was of the extraordinary growth they saw in B2C and it’s obvious from the numbers that this segment can be wildly profitable when one uses that truck and driver that goes to every home six days a week operated by the Postal Service,” he said. “For the first nine months of the year UPS’s ground volume was down slightly year-over-year, but because of the volume surge in the fourth quarter it finished ahead of last year by 0.8 percent. Modest for sure but that’s still a lot of packages.”

He added that the “scary” numbers were in the air, with domestic air down over last year, which has also seen at FedEx. While some of this may be due to the migration of some air packages on the short haul moving to the guaranteed ground product, Hempstead said one has to ponder if the ground number is slightly inflated by the downtrading of its own air packages into the lower priced services. But he added that though the fourth quarter there was a tremendous upsurge in the deferred air service, and this may be attributed to shippers upgrading ground packages to air in order to have them delivered by Christmas.

“It will be interesting to see if their Q1 2012 has a similar or continuing growth in deferred air or if it’s only a Q4 phenomenon,” said Hempstead.