Wednesday, February 1, 2012

Gains in US E-Commerce Drive UPS’ Fourth Quarter Earnings

From Ti's global email newsletter:

Surprisingly, it was the US Domestic Package division and not the International Package division that was the main driver for revenue growth for UPS during the fourth quarter. For the quarter overall, total revenue increased 5.6% to $14.1bn despite an accounting change to its pension reporting. This change in accounting practice did impact quarterly operating profits which declined 29% as a result.  For 2011, total revenue was $53.1bn, a 7.2% increase over 2010. Operating profit for 2011 increased over 14% to $6.7bn.

US Domestic Package division reported quarterly revenue of $8.67bn, a 7.3% increase. The division noted a strong holiday season bolstered by strong growth in online sales. In fact, the 2011 peak season was the biggest ever for the company. Average volume per day increased almost 4% to 15.7m. According to UPS CEO, Scott Davis, “In the US, we saw robust growth in e-commerce while traditional retailers experienced mixed holiday sales. Continued growth in business-to-consumer contributed significant growth in UPS residential shipments.”

The International Package division reported a 3.3% increase in revenue, $3.2bn. However, margins slipped to 16% from 17.4% due to weakness in the Asia-US trade lane and currency fluctuations. Package volume along this trade lane declined 3%. Overall, non-US domestic volumes were up over 1% due to strong growth in European exports and from such countries as Poland, Turkey and France. Also, strong intra-Asia demand was noted. The average volume per day increased 2.4% to 2.6m. To further their reach in the growing e-commerce trend, UPS introduced two return services to 30 countries across Europe: UPS Returns Exchange and UPS Returns Pack and Collect, both reverse logistics solutions targeting European online retailers.

The final division, Supply Chain and Freight, reported $2.3bn for fourth quarter, a 2.2% increase from 2010. UPS Freight led the segment with revenue growth of 9% although on lower daily shipments. Distribution reported improving margins and increased operating profitability. Although no mention was made of the Freight Forwarding group in the company’s press release, it is possible the group was negatively impacted by declines in ocean freight and air freight demand.

Overall, UPS reported not only a strong quarterly report but one for all of 2011. Although it appears the company did not gain a significant increase in volume through any of its services, it was successful in increasing revenue by raising prices and improving its profits by managing its operations accordingly.

UPS’ outlook for 2012 is optimistic. Although the company expects “mixed economic growth around the world with modest improvement in the US”, profit expectations of 9% to 15% over 2011 are forecasted for the year. Volume-wise, UPS expects a 2% to 3% increase in domestic package and a 5% to 6% increase in international volumes.

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