A strong quarter for UPS — despite the weather

UPS 757-200F at WorldportUPS reported first-quarter net income down 12.2% y-o-y to $911 million, as revenue rose 2.6% to $13.78 billion. Operating profit for the quarter was down 4.2% to $1.51 billion. The seeming disconnect between rising revenue and falling profit was the result of “unusually harsh weather [which] weighed on operating profit by approximately $200 million.” Absent the increased expenses incurred dealing with the impact of the weather, UPS would likely have reported solid increases in both operating profit and net income.

Looking at the company’s operating results, it is clear that UPS’ express business is growing strongly, with package volumes up for all products in both the US Domestic Package and the International Package segments. The growth was led by the International Package segment, with average daily shipment volumes up about 8% for both the Export and International Domestic products. In the company’s core US Domestic market, volumes were up 4.4% for Ground, 6.3% for Deferred, and 1.5% for Next Day Air.

The continuing expansion of e-commerce drove the growth in Ground and Deferred volumes, and although these are lower-yield products than Next Day Air, we point out that Next Day Air volumes also grew – just not as strongly. This shift in product mix, combined with lower fuel surcharges, led to an overall 1.5% drop in per-package revenue in the US Market. This, and expenses associated with weather-related network disruptions “on more than half the operating days during the quarter,” led to a 14.6% drop in operating profit for the US Domestic Package segment. However, despite these problems, the segment still generated an operating margin of 10.9% – an enviable result, given the conditions.

Without any unusual weather impact, operating profit in the International Package segment grew strongly, up almost 25% to $438 million. Even adjusting for the impact of a charge related to the failed TNT takeover in the first quarter of last year, operating profit in the segment was still up 12%, and operating margin was an extremely healthy 14.0%.

All things considered, UPS had a strong quarter, and, if current trends continue, should have a good year in 2014.

 

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