Thursday, January 31, 2013

UPS reports respectable earnings for fourth quarter

UPS reported a respectable fourth quarter. Its Q4 revenue increased just shy of 3% to $14.57bn as once again the US domestic business led the growth increasing 3% to $8.93bn. Residential shipments, due the growth of ecommerce, were strong and resulted in a new high for operating profit in this segment to $1.4bn. Average daily volume increased 3.2% with US Next Day Air up 8% and Ground up 3%.

The uncertain global economy was still a factor in the international package segment as overall revenue increased only 1.6%. Customers continued to trade down to non-premium products however, the growth in demand for these products was evident as international export volumes increased 5%.  International export volume from Asia grew in the mid-teens and was aided strongly by the tech sector. Within Europe, Germany, Italy and the UK showed solid export increases.

The Supply Chain and Freight Forwarding segment reported a 4% increase in Q4 revenue to $2.4bn.  The Freight Forwarding and Logistics revenue increased 2.5% while UPS Freight revenue increased 6.2%. Although there was a revenue increase, margin and profit declined for the total segment. For example, transportation expense increased particularly in Asia where the air freight market saw a short term volume surge which exceeded capacities and drove up buy rates. Also, three additional healthcare facilities opened and the rollout of technology enhancements within these facilities continued. It was noted on the earnings call that Ocean Freight Forwarding had its most profitable year in 2012 thanks in part to its LCL offering.

Although the European Commission’s negative ruling on the TNT acquisition was a major disappointment to the company, it remained positive in its growth opportunities in Europe. According to Dan Brutto, UPS President of International, there are opportunities to expand in certain areas of Europe and Eastern Europe such as expanding its healthcare operations across the region. Also, the European ecommerce market appears to be another interest as UPS plans to announce the expansion of its European parcel network, Kiala, into the UK.

For 2013, UPS expects overall revenue to increase mid-single digits with domestic and export daily volume growing faster than global GDP. For the Supply Chain and Freight segment, revenue is expected to increase at the mid-to-high single digits with a profit growth of 10%.