UPS says Q2 performance marks best quarter in company’s history

Second quarter earnings for Atlanta-based freight transportation and logistics services bellwether UPS released today represented the best financial quarter in the company’s history.

Quarterly revenue–at $18 billion-was up 3.4% annually, with net income-at $1.685 billion-up 12%, and earnings per share $1.94 topping the $1.71 recorded last year and topping Wall Street estimates of $1.93 per share. 

UPS pointed to rising demand for next-day service for its strong U.S. results, in addition to leveraged asset-light and proven cost management strategies in its International and Supply Chain and Freight groups.

“Our Transformation initiatives are generating greater efficiencies across the network and, when combined with our growth strategies, UPS achieved profit growth in all segments,” said David Abney, UPS chairman and CEO, in a statement. “We also announced a very extensive roll-out of new products and services such as UPS My Choice for Business, expanded UPS Access Points, and UPS Worldwide Economy, among others, for small- and medium-sized businesses, all designed to generate additional profitable growth.”

Individual segment results in Q2 2019:

• U.S. domestic package revenue increased 7.7% to $11.15 billion, paced by increased demand for air services from healthcare and retail customers. Average daily package volume rose 7.1% to 17.207 million, with Next Day Air up 30.3%, Deferred up 12.6%, and Ground up 4.1%. Total U.S. Domestic Package revenue per piece, at $10.12, was up 0.5%;
• International Package revenue was down 2.7% at $3.505 billion. Total International Package revenue per piece, at $17.41, was down 0.5%; and
• Supply Chain and Freight revenue was down 3.1% annually at $3.93 billion. LTL revenue was down 2.8% to $706 million, and LTL revenue per hundredweight was up 3.9% at $26.34

“During the quarter, we made significant progress in executing on our strategies,” Abney said on today’s earnings call. “These initiatives, combined with strength in our underlying business and scale of our global network, are creating strong results. We grew profit in all three segments and generated the most profitable quarter in the history of our company. Our Transformation is also creating greater efficiency and agility in funding reinvestment in new state-of-the-art solutions. This will enable UPS to capture profitable growth opportunities at an even higher level.”

Addressing the myriad new services and solutions introduced by UPS yesterday, Abney explained that these offerings will provide customers with new levels of speed, stability, control, and market access, especially for its SMB, e-commerce, and healthcare customers, calling it an exciting and momentous time at UPS, as it leverages the exceptional power of UPS technology and innovation to bring the market new industry-first capabilities. And he added on the efficiency front, these Transformation efforts are enabling a faster and more flexible network.

On the airfreight side, UPS plans to add 44 new aircraft, which will create more than 10 million pounds of additional air capacity in its network. Abney said this represents the largest air capacity expansion in the industry in recent history.

“The timing for our actions could not be better with the largest e-commerce shippers adopting next-day and often moving from our competitors’ two-day options to our one-day services,” he said. “This structural change is creating opportunities for UPS. Our additional air capacity and modern integrated network offer unmatched flexibility and position UPS well to serve changing customer needs.”

Looking at Peak Season Prospects, UPS COO Jim Barber said UPS has been actively working on planning efforts, with this year’s peak period having five fewer days between Thanksgiving and Christmas than last year.

“The last time we saw a calendar like this was five years ago,” he said. “With the air growth we are seeing right now, we are in Peak Season air growth numbers now compared to the last peak. We feel like last year we proved to the market we can take a step forward, and we plan to do it again this Peak Season. Yes, it is more challenging, but we are stronger and better. Our ability to do what we are doing right now gives us really strong confidence. The other thing that most people cannot see from the outside is that we put our buildings up in 2018 to get ready for that peak. The majority of those buildings, around 80%, came online in the fourth quarter. This year, 80% came online in the first three quarters. We feel we are ready for peak even though there are fewer days on the calendar.”

Jerry Hempstead, president of Hempstead Consulting, said that these UPS results point to the company clicking on all cylinders. 

“They are turning packages into cash,” he said. “The investments in automation appear to be providing the platform to get a reasonable payback for investors.”