UPS reports record fourth quarter 2012 earnings performance

Transportation and parcel bellwether UPS reported today that fourth quarter revenue increased 2.3 percent annually to a record $14.57 billion, and adjusted operating profit saw a 41 percent gain to record $2.05 billion. And earnings per share at $1.32 saw a 3 percent gain, falling short of Wall Street estimates of $1.38 per share.

UPS said that while quarterly performance was paced by its U.S. Domestic segment, it estimated that EPS was reduced by about five cents due to Hurricane Sandy. It added that it recorded a fourth quarter after-tax charge of $3.0 billion for its company-sponsored pension and post-retirement benefit plans.

As was the case a year ago, the holiday season and solid e-commerce activity were key in quarterly output, although it pointed out that consumer spending for the holiday shopping season was slightly below expectations.

“Despite an environment of sluggish global trade that persisted for most of 2012 and increased uncertainty in the U.S, the November elections and the Fiscal Cliff, UPS executed well,” said Scott Davis, UPS chairman and CEO, on an earnings call this morning. “Although we fell short of our goals for the year, we did achieve record EPS ($4.53 for 2012), with our U.S. domestic business leading the way. We continue to see robust growth in international shipments as the UPS portfolio provides a rapidly growing e-commerce market with unequaled solutions.”

Looking at 2013, Davis explained that the global economic environment remains in a cycle of mixed growth and mixed signals, with customers explaining that fiscal uncertainty continues to erode business confidence and growth prospects, which he said will continue until Washington starts to compromise and makes decisions in key areas. But he did note that UPS is off to a strong start in January, and also explained that the economic environment in Europe is in a more stable situation than a year ago.

Peak Season Performance: UPS COO David Abney said on the call that while holiday retail sales came in slightly below expectations, UPS still hit a new high in delivering more than 500 million packages globally during Peak Season. On its peak air delivery day, December 24, he said UPS delivered more than 8 million air packages, which represents more than 2.5 times its normal air volume and more than 1 million pieces compared to its peak day for the same time frame the previous year.

“Volume on our peak delivery day, December 19, was almost 28 million packages,” said Abney. “And on six days we delivered more than 25 million packages. Our busiest tracking day was December 18, with more than 65 million tracking requests occurring.”

For the fourth quarter, average daily package volume of 18.8 million packages was up 2.9 percent, with total U.S. domestic packages averaging 16.2 million for a 3.0 percent gain and total international packages up 2.2 percent at 2.7 million packages per day. U.S. domestic package next-day air daily volume was up 7.7 percent at 1.405 million packages per day while deferred—at 1.296 million packages—and ground at 13.5 million packages—were down 1.4 percent and up 3.0 percent, respectively.

Revenue for UPS’s U.S. domestic package at $8.93 billion was up 3.0 percent.
Consolidated revenue per piece at $10.45 was up 1.4 percent, with U.S. domestic packages and international package averages at $9.06 (up 1.7 percent) and $18.91 (up 0.9 percent), respectively. These increases were driven by base rate improvements in both ground and air.

International package revenue at $3.201 billion was up 1.5 percent, and International Package adjusted operating profit at $499 million was down 2 percent. Average daily package international package volume—at 2.659 million—was up 2.2 percent, and average revenue per package for international was up 0.9 percent at $18.91. UPS said that strong demand for its products in Asia and Europe drove a 5.5 percent gain in average daily export volume.

Supply chain and freight revenue at $2.437 billion was up 4.0 percent, and adjusted operating profit at $172 million was down 14 percent. UPS Freight, the less-than-truckload segment of UPS, saw revenues up 6.2 percent, while its LTL gross weight hauled was up 4.9 percent and revenue per hundredweight was up 1.5 percent.

UPS CFO Kurt Kuehn said on the call that the company’s total 2012 revenue of $54 billion, which was up 1.9 percent annually, was the company’s highest ever, as were the 4.1 billion packages the company delivered globally.

“In the U.S. domestic segment, we fired on all cylinders,” said Kuehn. “This was driven by expansion in B2C (business-to-commerce) shipments. Despite slightly lower than forecast holiday retail sales, shoppers went online like never before. We experienced strong growth in Next Day Air and traditional UPS Ground.”

Jerry Hempstead, president of parcel consultancy Hempstead Consulting, said that UPS did an extraordinary job in the 4th quarter handling an incredible increase in traffic and doing so without compromising service.

“Hurricane Sandy could have placed service at risk, however, it looks like they ‘weathered that storm’ well albeit with some impact to earnings (and one must also appreciate that with so much package volume concentrated in the greater NY and NJ metropolitan area they still had impressive volume growth),” he noted.

Hempstead observed that with the UPS quarter ending in December, its air volume for domestic next day air was up almost 8 percent. And for the most recent FedEx quarter, he said next day was down almost 3 percent. He said declines in deferred air—with UPS down 1.4 percent and FedEx down 1.2 percent in its most recent release—can be attributed to shippers becoming savvy enough to capitalize on that savings therein.”