UPS reports 8 percent gain in third quarter 2011 revenue

Quarterly revenue for Big Brown—at $13.2 billion—was up 8.0 percent annually, and operating profit—at $1.61 billion—was up 0.2 percent. Earnings per share—at $1.06—saw a 14 percent year-over-year increase, topping Wall Street expectations of $1.05 per share.

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Third quarter earnings for transportation industry giant UPS were solid if not spectacular.

Quarterly revenue for Big Brown—at $13.2 billion—was up 8.0 percent annually, and operating profit—at $1.61 billion—was up 0.2 percent. Earnings per share—at $1.06—saw a 14 percent year-over-year increase, topping Wall Street expectations of $1.05 per share.

Driving positive quarterly earnings to a large degree were strong performances by its U.S. Domestic Package and Supply Chain & Freight units, according to company officials.

Average daily volume of 15.1 million packages was up 0.7 percent, with total U.S. Domestic Packages averaging 12.7 million packages per day and total International Packages averaging 2.3 million per day. Consolidated revenue per piece—at $11.06—was up 7.7 percent, with U.S. Domestic Packages and International Packages averaging $9.53 and $19.41 per package, respectively. 

“In the face of challenging economic conditions, results like these reflect the value that UPS solutions are providing customers,” said UPS Chairman and CEO Scott Davis on an earnings call this morning. “There is increasing uncertainty in the global economic environment. Most notably, exports from Asia…slowed significantly during the quarter. On the other hand, the U.S. economy has stabilized and continues to show modest growth. And despite all of the concerns over the European economy, our business there continues to perform well, with exports up 9 percent.”

The outlook for the remainder of the year is for continued slow growth, said Davis, adding that because there has been less build up of inventories heading into Peak Season, UPS could benefit if consumers respond with stronger-than-expected holiday purchases as was the case in 2009. But he explained this will not be determined until two weeks before Christmas as the Peak Season has become more compressed.

UPS’ U.S. domestic package revenue at $7.77 billion was up 6.5 percent, and operating profit of $1.015 billion was down 0.5 percent.

Supply chain and freight revenue at $2.3 billion was up 5.3 percent, and operating profit of $195 million was up 10.2 percent.  At UPS Freight, the company’s less-than-truckload (LTL) unit, LTL revenue-per-hundredweight was up more than 13 percent, due to higher fuel surcharges and stronger base rates.

International package revenue at $3.1 billion was up 14.2. International package operating profit of $409 million was down 2.4 percent.

“On our last earnings call, some thought UPS was a little bit ahead of the curve with its economic outlook,” said UPS CFO Kurt Kuehn on the conference call. “However during the last few months we did witness the impact of economic slowing and continue to see the near-term outlook pointing to slow but steady growth.”

Kuehn noted that with the exception of the International segment, UPS’s quarterly performance held up well, especially considering the economic conditions and increased uncertainty.

On the U.S. Domestic Package side, Kuehn said that the despite flat package growth, the company’s focus on yield—or quality of revenue—is paying off, with yields up 6.5 percent and saw base price increases of about 3 percent and higher fuel surcharges being the hey factors.

And on the International side, Kuehn said there was a combination of slowing economic activity and challenging comparisons to strong results last year’s third quarter, when UPS experienced 47 percent volume growth in the Asia-U.S. lane. And the decline in the International operating profit, he said, was due to excess capacity, higher fuel prices, and a slight drag from currency fluctuations.

“UPS acted swiftly to take down aircraft and pull capacity out of the market but not quickly enough, and margins were negatively impacted,” he said. “The bottom line is we built the network expecting a certain level of growth that did not materialize, and because of this we have now reduced our air lift capacity out of Asia while still maintaining our recently-added service enhancements. If demand continues to soften, we can make additional adjustments. On the other hand, UPS is capable of adding back capacity if the surge in consumer demand occurs before Peak Season.”

Even with these challenges, the 14 percent growth in revenue on the International side was driven by solid volume growth on the export side, which was up 6.5 percent, and occurred in the shorter trade lanes within Europe and Asia and across North America.

Even with a solid quarter, Jerry Hempstead, president of Hempstead Consulting, told LM there are some causes for concern, when looking at the earnings results.

“The engine that pulls the UPS train is the domestic ground business, and the quarterly package count was flat, and if you look at the first nine months of this year I believe the number is slightly negative. The UPS air volume was up slightly. Anemic. If you look at the air volumes for FedEx for their most recent quarter their package count was down. Air is the engine that pulls FedEx. If you further add to the mix the USPS you see that now FedEx is the largest parcel customer of the USPS and is one of their fastest growing customers. The second largest and I believe the fastest growing parcel customer of the USPS is UPS.”

In looking at the overall parcel market, Hempstead said it is probable there may be double counting of some of the parcels that UPS and FedEx give the USPS, explaining that one can conclude that the overall parcel count is flat or down for 2011 and that is the real early economic indicator that shows true economic growth is still minimal.

And with package growth relatively unchanged annually and fuel prices remaining largely stable, Hempstead said quarterly revenue growth improved far more than the company’s GRI (General Rate Increase) that took effect in January. And its change in dimensional pricing, which took effect on January 3 and are based on the greater of the actual weight or dimensional weight of each shipment in the package, is a major driver of revenue gains.

“The surprises are no longer in the general rate increase but in the nuance changes to rules and accessorials,” he said. “So how do you turn 2012 into a year of revenue and earnings improvement if there is no uptick in the universe of the parcel package count?
My advice [for shippers] is to expect the unexpected.  My tummy says there has to be a shoe drop between now and Christmas from which UPS can duplicate in the third quarter of next year, with the revenue and earnings growth they showed in today’s announcement.”

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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Article Topics

FedEx · Logistics · Parcel · Supply Chain Management · UPS · USPS · All Topics
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