UPS reports solid Q1 results

Despite increasing fuel costs and harsh winter weather conditions, UPS reported today that first quarter revenue—at $12.58 billion—was up 7.3 percent year-over-year.

Quarterly operating profit—at $1.43 billion—was up 21 percent, and net income at $885 million was up 66 percent. Earnings per share of $0.88 were 21 percent ahead of last year and ahead of Wall Street estimates of $0.85 per share.

Average daily volume of 15.0 million packages was up 0.2 percent. Quarterly package volume at 957 million was up 1.8 percent. Average revenue per piece of $10.76 was up 5.2 percent.

Total U.S. domestic package average revenue per piece at $9.30 was up 5.0 percent, with total average U.S. domestic package volume at 12,669 was down 0.5 percent, with Next Day Air down 0.9 percent and Deferred and Ground down 0.3 percent and up 0.6 percent, respectively, on a daily basis. Total International Package volume growth on a daily basis at 2,288 on average per day were up 4.0 percent, with domestic international up 2.1 percent and international export up 7.2 percent. 

“Despite the obstacles we faced with civil unrest in North Africa and the Middle East, skyrocketing fuel costs, and some of the worst weather conditions in years, so far, the global economic recovery has been resilient, yet the risks are greater than they were three months ago,” said UPS Chairman and CEO Scott Davis on a conference call with analysts and the media today.

During the first quarter, Davis said that UPS has continued to remain active in expanding its capabilities to “serve the economies of the world.” He cited how UPS launched four direct flights from Hong Kong to Europe, making it the clear leader in next-day delivery for this trade lane, and how the company forged a new strategic alliance with Colombia, among others.  

In his comments, UPS CFO Kurt Kuehn said that the UPS growth story continues, explaining how UPS benefitted from its superior products and its flexible integrated network. And he explained how the negative effects of escalating fuel prices and difficult weather were more than off set by execution by the global UPS team.

Operating profit for UPS’s U.S. Domestic Package business at $849 million was up 28.6 percent. International Package was up 4.4 percent at $446 million, and Supply Chain and Freight were up 44.0 percent at $131 million, with total operating profit at $1.426 billion up 21.1 percent.

In keeping with the company’s focus on yield management, Kuehn said that increases in base rates served as the key driver on that front as the company gets its prices back in line with the value they provide.

“Higher fuel surcharges and package characteristics also contributed to yield improvement,” said Kuehn. “We are executing our strategy on focusing on the quality of revenue. The key objective of this strategy is to ensure we are properly compensated for the value we provide, and it is paying off as evidenced by our strong yield gains.”

While average revenue for U.S. domestic packages was up 5.0 percent, average daily volume was basically flat down 0.5 percent.

On the international side, Kuehn said the operating profit of $446 million represents the best first quarter result in the company’s history. But with a relatively low annual earnings growth gain of 4.4 percent, Kuehn said the rapid increase in fuel costs had a negative impact.

UPS’s less-than-truckload unit, UPS Freight, had a very strong quarter, with revenue up 22.8 percent at $604 million and strong increases in LTL revenue per hundredweight up more than 8 percent and gross weight hauled.

Regarding its 2011 outlook, UPS said it is raising guidance for 2011 diluted earnings per share to $4.15-to-$4.40, which is a 17-to-24 percent annual improvement.

In the U.S. Domestic segment, Kuehn said he expects average daily volume to increase roughly 2 percent in the second quarter, with continued strengthening in the second half of 2011, with Next Day Air and Ground expected to grow at a similar pace for the full year. And operating profit growth is expected to exceed 20 percent for the year, which Kuehn said is up from previous guidance.

International revenue and operating profit are expected to grow ten percent, said Kuehn, with full-year operating margins expected to be similar to 2010.

“Considering the impact of the weather in the USA during the 1st quarter and the Earthquake and devastation in Japan, an important import and export market for UPS, the quarter was outstanding and far better than the expectation of most,” said Jerry Hempstead, principal of Hempstead Consulting.

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