UPS reports mixed Q1 earnings results

First quarter earnings for Atlanta-based transportation and logistics bellwether UPS released today were mixed to a large degree.

Quarterly revenue, at $17.2 billion eked out a 0.3% annual gain, with UPS pointing to gains in average daily volume and higher quality revenue as the growth drivers. Net income, at $1.11 billion, was off 17.4% annually, with adjusted earnings per share, at $1.39, falling short of Wall Street expectations of $1.42 per share.

What’s more, UPS observed that its quarterly results reflect the impact of severe winter weather in the U.S. by around $80 million or $0.07 per share, and it had one less operating day compared to the first quarter of 2018, as well as Easter occurring in mid-April. 

“The first quarter marked a good start to the year, as we executed against our strategy and generated solid performance across our business,” said David Abney, UPS chairman and CEO. “Our Transformation initiatives are enhancing revenue quality and creating network efficiencies that will increase our long-term earnings power. We are on a path to take advantage of growth opportunities and enhance our future performance.”

Individual segment results for UPS in Q4 2018:

• U.S. domestic package revenue increased 2.5% to $10.48 billion, with adjusted operating profit at $694 million, down 8.2% annually to last year’s $756 million. Average daily package volume was up 2.2% to 16.631 million, with Next Day Air up 8.8% to 1.563 million, Deferred up 6.7% to 1.384 million, and Ground up 1% to 13.684. Total U.S. Domestic Package revenue per piece, at $10, was flat
• International Package revenue was down 2.1% at $3.459 billion.Total International Package revenue per piece, at $16.79, was down 1.2%; and
• Supply Chain and Freight revenue was down 3.9% annually at $3.221 billion. LTL revenue was down 3.9% to $635 million, and LTL revenue per hundredweight was up 5.4% at $26.10

On an earnings call this morning, UPS’s Abney said that all UPS business units generated improved revenue quality and successfully executed cost management strategies while building on high levels of service, adding that that company is achieving the efficiency goals it expected through its Smart Global Logistics Network flexibility.  Abney also cited how UPS achieved another quarter of consolidated volume growth, generated high quality revenue and expanded network efficiencies for improved financial performance.

The top UPS executive also explained how the company continues to recalibrate its network to strengthen its market position in the fastest growing economies around the world.

“We see ongoing growth potential internationally with the middle market outpacing the enterprise segment, especially in B2B,” he said. “With trade environment changes, we regularly identify opportunities to adjust our network for increases efficiency and flexibility. For example, we recently announced the deployment of new aircraft to service major trade routes between Hong Kong and Europe. These larger aircraft enable growth on this important trade lane and unlock greater efficiencies and capacity within our global network.”

Jerry Hempstead, president of parcel consultancy Hempstead Consulting, said that when factoring in that UPS increased rates by an average of 4.9% in January and increased its fuel surcharge formula, which improves yield, at the end of December, first quarter results could be viewed as “disappointingly soft” on the domestic front.

On the international side, he said thing were strong, but that comes with the caveat that a lot of that growth comes from the capture of new customers that had to transition to UPS (and DHL) due to the troubles at TNT that were the result of the computer virus that crippled the TNT operation in June of 2017 and beyond.  

“UPS may still be the recipient of some goodwill from this extraordinary event, but looking forward there will be a price to pay as the year over year comparisons will become more difficult because the windfall will not be recurring,” he said. “UPS acknowledged this on the investor call, which I think was the first time they have ever mentioned that growth may have come at the expense of TNT and not from the brilliant execution of some strategy from Mahogany row in Atlanta.”

And while there was one less working day and weather issues for UPS in the first quarter, there were also weather issues during the first quarter of 2018, and UPS also benefitted from a lower tax rate, he noted.

“I would not be surprised, if the many profit improvement programs UPS has underway do not demonstrate the expected result they tout, and that UPS takes a price adjustment overall or increases the seasonal surcharge and announce in late summer, he said.