UPS reports solid Q1 earnings results

In its first quarter earnings announcement today, UPS reported strong annual gains that it said were paced by its U.S. Domestic and International small package groups.

Quarterly revenue was up 3.2 percent annually at $14.4 billion, with earnings per share up 13 percent at $1.27 for the fifth straight month of UPS growth (ahead of Wall Street expectations of $1.22 per share), as well as setting a new record for the first quarter.

Even though revenue was up annually, the company said it was quelled by lower fuel surcharges and currency exchange rates.

“Our International segment sustained its momentum for the fifth consecutive quarter of double-digit operating profit growth, and the U.S. domestic business also expanded operating margins as efficiency gains enhanced bottom line results, while Supply Chain and Freight performed slightly ahead of our expectations,” said UPS CEO David Abney on a conference call earlier today. “Our accelerated investments into the UPS network are improving business results. This is enabling us to deliver strong financial results despite the current mixed-macro environment. U.S. GDP continues to be revised downward, yet consumer spending is the primary catalyst for growth in the economy and e-commerce sales have again exceeded expectations.”

Abney added that industrial production remains below 2015 levels, and in Europe economic expansion has slowed slightly, but the pace of growth remains healthy. And in Asia he said the major economies have showed positive signs of stabilization, as exports from China improved in March.

Despite these mixed economic conditions, we remain committed to making investments for growth and efficiency, and we will continue to implement our enterprise strategy, providing UPS customers with increased choice, convenience, and control,” he said.

UPS delivered 1.1 billion packages in the first quarter for a 3.6 percent annual increase.

UPS COO Richard Peretz noted on the call that e-commerce customers drove both B2B and B2C shipments higher, with B2C up more than 6 percent in the quarter. And he added that online purchases on the B2B side drove demand for the company’s best-in-class returns services portfolio, which had double-digit quarterly gains.

“Base rates were up more than 2 percent but offset by changes in package characteristics and the mix of product and customers,” he said.

Consolidated revenue per piece at $10.39 was down 1.6 percent, with U.S. domestic packages and international package averages at $9.35 (down 1.3 percent) and $16.39 (down 0.5 percent), respectively.

U.S. domestic package revenue increased 3.1 percent to $9.084 billion, with operating profit up 7.6 percent at $1.7 billion. Average daily package volume was up 2.8 percent at 15.1 million, with package volume growth augmented by technology, while lower fuel surcharges led to a 1.9 percent decline in cost per unit. And Deferred Air products were down 1.8 percent at 1.196 million per day, and Next Day Air was up 3 percent annually at 1.266 million daily packages.

Total international package revenue was down 1.9 percent at $2.914 billion, and operating profit was up 15 percent at $574 million. Average daily package volume was off 2 percent at 2.647 million. UPS said the gain in operating profit was due to a combination of disciplined pricing and network capacity gains, with the revenue decline driven by lower fuel surcharges.

First quarter revenue for UPS Supply Chain and Freight was up 10.4 percent at $2.420 billion, and operating profit was down 2.6 percent at $147 million, which UPS said was better than expected despite being down annually, adding that the revenue gain was largely due to the company’s 2015 acquisition of Coyote Logistics, while sluggish LTL and air freight market conditions slowed overall growth for the quarter. UPS Freight LTL revenue per hundredweight was up 2.1 percent at $23.25, but UPS said the gain was offset by a 6.1 percent tonnage decline at 2,416 million shipments, with LTL shipments per day off 7.6 percent. UPS said that tonnage is still “challenged” by current market conditions, while it remains focused on disciplined revenue management efforts. 

Jerry Hempstead, president of parcel consultancy Hempstead Consulting, was bullish on UPS’s first quarter performance.

“UPS is doing an outstanding job managing costs, optimizing its network, and staying disciplined with pricing,” he explained. “This is manifesting itself in ever improving yields and profits. Unfortunately for shippers it means they are paying more (save for fuel) than they paid last year. As fuel goes up, the top line (and I suspect the bottom line) of UPS are going to go up. The results demonstrate an extremely well managed machine designed to effectively and efficiently move packages from point A to point B. And as they tweak the system and best utilize their assets they squeeze more money out.”