UPS reports Q1 earnings up 2.2 percent at $13.43 billion

UPS reported today that first quarter revenue rose 2.2 percent year-over-year to $13.43 billion, with operating profit up 0.7 percent at $1.58 billion. Quarterly earnings per share—at $1.04—saw a 7.4 percent gain and beat Wall Street analysts expectations of $1.01 per share.

Company officials explained that the revenue gain was largely driven by a better than expected post-holiday season in January, with e-commerce offerings faring well and a strong performance in its U.S. domestic package segment.

“UPS delivered another quarter of growth, reflecting the…discipline and earnings consistency we have come to expect,” said Scott Davis, UPS chairman and CEO, on an earnings call this morning. The UPS domestic business continues to expand margins and speaks the ability of our integrated network and operations technology that serve the fast-growing B2C (business-to-consumer) network profitably.”

In the first quarter, average daily package volume of 16.2 million packages was up 4.1 percent. Total U.S. domestic packages averaged 13.8 million for a 4.4 percent increase and total international packages up 1.8 percent at 2.4 million packages per day. U.S. domestic package next-day air daily volume was up 1.8 percent at 1.24 million packages per day while deferred—at 1.02 million packages—and ground at 11.57 million packages—were up 3.7 percent and up 4.8 percent, respectively.

UPS U.S. domestic package revenue at $8.27 billion was up 3.3 percent. And total consolidated revenue per piece at $10.86 was flat annually, with U.S. domestic packages and international package averages at $9.49 (up 0.4 percent) and $18.74 (down 0.5 percent), respectively.

International package revenue at $2.98 billion was up 0.4 percent, and International Package operating profit at $352 million was down 14 percent. Average daily package international package volume—at 2.395 million—was up 1.8 percent. UPS said that daily export volume on the international side was up 3.8 percent, due to growth in Asia, with daily European exports up about 3 percent.

Supply chain and Freight revenue at $2.19 billion was up 0.9 percent, and operating profit at $143 million was down 14 percent. UPS Freight, the less-than-truckload segment of UPS, saw revenues up 11 percent at $688 million, while daily shipments were up 3.6 percent and tonnage and revenue per hundredweight up 5.1 percent and 1.7 percent, respectively.

Negatively impacting the Supply Chain and Freight segment, said UPS, was its Forwarding business, which is dealing with overcapacity in its Trans Pacific trade lanes, leading to declines in both tonnage and yields.

On the call, Davis said that growth in emerging markets, B2C, and industry-specific solutions like healthcare have enormous potential. He cited how in the first quarter UPS became the first global express delivery company to have wholly-owned operations in Vietnam and also continued to expand its healthcare footprint with today’s announcement that it plans to acquire Hungary-based pharmaceutical logistics company, CEMELOG Zrt. Davis said investments like these reflect the company’s growing commitment to emerging markets, which will generate the bulk of global growth in coming decades.

Another positive development highlighted by Davis was that the company’s labor negotiations with the Teamsters, saying that the parties have made significant progress and resolved the most important issues in their labor contract and are optimistic a deal will be reached very soon.

UPS CFO Kurt Kuehn said on the earnings call that UPS results continue to be buoyed by e-commerce, as its omnichannel strategies are playing a bigger role.

“An increased focus by traditional retailers on using their brick and mortar locations as distribution sites is creating more pickups to regional locations for ultimate residential delivery,” he said. “B2C growth in differentiated products like our Returns portfolio produced surprisingly strong January volume levels, however, daily package growth for the remainder of the quarter remained pretty much as forecast. UPS base rate pricing remains consistent in utilizing our long-term objectives. The 1.5 percent growth in revenue per piece [for U.S. Ground packages] reflects the higher growth of our lighter-weight B2C products and our Returns portfolio.”

He added that total U.S revenue per piece was impacted by reduced fuel surcharges and changes in both product and customer mix and also noted that the U.S. domestic segment has been reacting successfully to what he described as explosive growth in e-commerce.

Jerry Hempstead, president of parcel consultancy Hempstead Consulting, told LM that that UPS’s package growth is encouraging even though FedEx keeps nipping away at the ground package market, noting that FedEx and UPS both clearly have significant growth coming from their hybrid postal products, Smartpost and Sure Post, respectively.

“Clearly if packages are a measure of economic health and vitality in the economy then the health of the [UPS] patient appears to be out of intensive care and perhaps upgraded from critical to serious,” said Hempstead. “Sadly the international volumes grew at a pale 1.8 percent year over year and that’s less than the 2.2 percent growth it saw in the fourth quarter. Interestingly even though UPS (and FedEx) took pricing up at the start of the year, it did not show up as yield improvement as much as it should have and international yields dropped but that is also a function of the fact that there are more viable choices for international like DHL and TNT and competition drives deeper discounting.”