UPS 2Q earnings soar 71% on 13% revenue growth

Despite an even economy, UPS earlier today reported strong second quarter results.

The company said that quarterly revenue—at $12.2 billion—was up 12.7 percent year-over-year, and operating profit—at $1.4 billion—was up 56.6 percent. Earnings per share—at $0.84—were up 71 percent.

UPS added that average volume per day of 14.8 million packages was up 3.4 percent, and consolidated quarterly volume of 948 million packages was up 4 percent, with consolidated revenue per piece—at $10.47—up 7.1 percent. Company officials said that these increases represent higher base rates, fuel surcharge increases, and heavier average shipment weight.

“We continue to see strong momentum in 2010…with improvement across all business units,” said UPS Chairman and CEO Scott Davis on an earnings call this morning. “This was achieved despite the fact that mixed economic signals continue to dominate the headlines.

Davis added that despite the debt crisis in Europe, which has created uncertainty in global markets, UPS had a strong quarter there, as well as Asia, which saw significant economic expansion, with UPS export volumes in the region growing more than 40 percent. He said UPS has succeeded in this environment, while also investing to further strengthen its global network. Total international package revenues at $2.7 billion were up 23.4 percent, and total international average daily package volume at 2,184 was up 20.1 percent.

UPS domestic package revenue at $7.269 billion was up 7.1 percent, with domestic package volumes at 12,618 per day up 1.2 percent. Supply chain and freight revenue at $2.164 billion was up 20.6 percent, and UPS Freight, the company’s LTL unit, brought in $555 million for a 9.5 percent gain.

UPS’s domestic strategy, which was rolled out earlier this year, is also starting to pay dividends for the company, according to Davis. This strategy is comprised of streamlining its domestic management structure by reducing the number of U.S. Regions to three from five and Districts to 20 from 46, as well as strengthening local sales and marketing efforts.

“UPS has embraced the need for change and quickly adapted to the new organizational structure,” said Davis. And this strategy, which Davis described as one of the most substantial changes in the company’s history, helped result in a 57.1 percent operating profit increase for UPS’s U.S. domestic package segment, which had an operating profit of $748 million.

International package had an operating profit of $521 million, up 77.8 percent, and supply chain and freight at $133 million was up 5.6 percent.

UPS CFO Kurt Kuehn said on the call that the numerous changes UPS has made, coupled with investments in its global network, are paying off and led the company to increase its 2010 earnings guidance to $3.35-$3.45 per diluted share—a 45 percent to 50 percent increase from last year.

Kuehn said while average daily volume for its U.S. domestic package segment was up 1.2 percent and ground was up 2 percent, the company is starting to see customers “trade up to premium services” which is encouraging. And he said that the 5.8 percent increase in average revenue per piece for U.S. domestic package at $9.00 is a result of stronger base rates, higher fuel surcharges and a focus on yield management, which, he said, is clearly showing results.

“The U.S. operations team operated to near perfection, with improved productivity, service, and cost management,” said Kuehn.

Capital expenditures for the second quarter at UPS were $690 million.

“The great news is that the ground volume is a bellwether of the general state of the economy,” said Jerry Hempstead, president of Hempstead Consulting. And those numbers were up substantially. Ground is the engine that drives the UPS train.”

One note of caution cited by Hempstead was UPS’s average daily package volume for next-day air, which was down 3.9 percent at 845,000. He said that number may be a concern for UPS rival, FedEx, as air is the “engine” for FedEx’ business.