UPS sees a 1.2 percent gain in second quarter revenue to $13.51 billion

Following an announcement earlier this month when it lowered its second quarter and full year earnings guidance, UPS today said that second quarter revenue increased 1.2 percent annually to $13.51 billion, with operating profit down 2.8 percent at $1.74 billion. Net income—at $1.071 billion—was down 4 percent.

Quarterly earnings per share—at $1.13—were down 0.02 percent compared to last year and matched its revised downward guidance and matching Wall Street expectations.

“Market conditions and shipper preferences clearly impacted our freight forwarding and international business,” said UPS Chairman and CEO Scott Davis on an earnings call today. “Customers around the world continue to put greater emphasis on costs, rather than time of transit. We believe this change is cyclical as in the last few quarters there has been a trough in the innovation cycle.”

Davis said demand for new high-tech products traditionally drives demand for express bulk package airfreight out of Asia, and he added that some of the modal trade-downs may be permanent as more international trade is being conducted regionally and supply chains are becoming more efficient, meaning the need for fast supply chain options may not be as strong in the future.

In the second quarter, average daily package volume of 15.7 million packages was up 2.3 percent. Total U.S. domestic packages averaged 13.3 million for a 1.9 percent increase and total international packages up 5.0 percent at 2.4 million packages per day. U.S. domestic package next-day air daily volume was down 1.5 percent at 1.23 million packages per day while deferred—at 937,000 million packages—and ground at 11.2 million packages—were up 1.4 percent and up 2.3 percent, respectively.

UPS’s U.S. domestic package revenue at $8.24 billion was up 2.3 percent. And total consolidated revenue per piece at $11.08 was off by 0.4 percent annually, with U.S. domestic packages and international package averages at $9.66 (up 0.3 percent) and $18.97 (down 3.4 percent), respectively.

International package revenue at $3.06 billion was up 1.6 percent, and International Package operating profit at $451 million was down 0.7 percent. Average daily package international package volume—at 2.396 million—was up 5.0 percent. UPS said that daily international export volume was up 5.0 percent, due to Asia and Europe.

Supply chain and Freight revenue at $2.20 billion was down 2.3 percent, and operating profit at $159 million was down 22 percent. UPS Freight, the less-than-truckload segment of UPS, saw revenues up 10.8 percent at $731 million, despite declines in operating margin—down 20 percent to 7.2 percent—and increases in compensation and benefit expenses.

The Forwarding and Logistics segment with the Supply Chain and Freight group had a difficult quarter, with revenue down 10.2 percent at $1.3 billion. UPS officials explained that the group remains under pressure with tonnage declines and yields negatively impacted by lower demand in Transpacific trade lanes.

Teamsters Update: On the call, Davis said that on June 25 UPS’s Teamster national contract received majority approval, explaining that UPS believes this agreement provides a fair and competitive wage and benefit scale and rewards its employees while also enabling UPS to remain competitive for the long run. But there remain unresolved local supplements between the Teamsters and UPS Freight, with the supplements covering specific geographic areas regarding topic including bidding and local area work rules. Davis said that until these are resolved the current agreements remain in place, as the company and the Teamsters have agreed to contract extensions while continuing to discuss the remaining issues.

Looking at the second half of 2013, Davis said though global economic expansion for the second half of 2013 is still expected, forecasts have been lowered in 10 of the 12 largest economies, including here in the U.S.

“One area the U.S. continues to struggle with is exports, especially to Europe,” he said. “So UPS strongly supports the Transatlantic Trade Investment Partnership. This is a great opportunity for the U.S. and the E.U. to set the standard for trade pacts.”

And he added that business cycles are creating short term challenges similar to those UPS has faced many times before, explaining that UPS still sees great growth prospects in B2C throughout the world, emerging markets, and healthcare solutions.

In addressing the 1.5 percent dip in Next-Day air volumes, UPS CFO Kurt Kuehn said that during negotiations, the company’s ability to win new business was hampered.

“Even though we received a handshake early, we missed some opportunities and did experience some minor volume diversions,” said Kuehn.

Kuehn added that while UPS did bring down its numbers, it’s important to note that UPS still expects improvement, with the midpoint of its range calling for about 8 percent earnings per share growth over the second half of 2012.

“Looking at the remainder of 2013 for the segments, in our U.S. domestic segment we expect daily volume will increase between 2 percent and 3 percent,” he said. “Growth should get stronger as the year progresses, as we convert missed opportunities from earlier in the year. Revenue growth should be slightly higher than volume. Package characteristics and lower fuel surcharges will continue to mask a base rate improvement somewhat, and profitability will be up at a mid single digit base.”