Thursday, April 25, 2013

UPS reports a modest 2.2% increase in first quarter revenue

There’s quite a bit of activity going on at UPS. During first quarter, the company dropped its bid for TNT, bought out its Vietnamese joint venture to become the first global express company in Vietnam to be 100% wholly-owned and bought a European medical logistics company - Cemelog.

Meanwhile, the company reported quarterly earnings up 2.2% to $13.4bn. Operating profit increased just slightly as UPS had to pay a termination fee of $268m and $16m in related expenses for its failed TNT acquisition. Because of additional gains along with the fees associated with TNT, UPS’ adjusted operating profit increased 3.2% to $1.6bn.

Once again, the US Domestic division led the revenue gains with ecommerce growth given credit for the increase.  A strong January was the result of customers utilizing UPS returns service. Overall revenues for this group increased 3.4% to $8.3bn but even more impressive was that operating profit increased 9.1% to $1.1m. It appears UPS has been working to tighten its network to achieve such a gain. Average daily volume per day increased 4.4% mostly because of gains made in the company’s Ground group. However, average revenue per piece only increased 0.4% with Ground increasing 1.5% and Next Day Air increasing only 0.3%. Despite a 3.7% increase in volume, Deferred average revenue per piece declined 3.0%.  Although ecommerce has been a boon for volumes, it appears its typical lower weight package is negatively impacting average revenue per piece. Reduced fuel surcharges appear to also be a factor in its air products.

Volumes within the International division appeared to have improved as daily export volumes increased 3.8%. Asia exports were up 8%, Europe up 3% and US was up less than 1%. However, revenue was up only 0.3% to $3.0bn and operating profit plummeted almost 14% to $352m.

And finally, the Supply Chain and Freight division noted a slightly less than 1% increase in revenue and operating profit declining almost 14%.  The Freight group was the major contributor for revenue growth. UPS Freight was a bright spot as it recorded 11.4% increase revenue and 5.1% increase in tonnage. Much like the overall freight forwarding market, UPS’ freight forwarding group suffered from overcapacity in the trans-Pacific tradelanes as both tonnage and yields declined. The Distribution group, however, recorded a 10% revenue. Despite a nice increase in revenue, it is likely the Distribution group has yet to turn a profit due to its heavy investments in infrastructure and technology.

The growth in first quarter was in line with what UPS expected. Moving forward, the company expects continued growth similar to the rate of growth in the US and the global economy.