Strong package volume gains drive first-quarter profit for UPS

UPS reported first-quarter 2018 net income up 15.4% y-o-y to $1.35 billion, as total revenue rose 7.2% to $10.28 billion. Operating profit for the quarter declined 6.0% to $1.52 billion, as the company’s US Domestic segment was hit by “headwinds from severe winter weather of $85 million, Saturday deployment, network projects, and higher pension expenses.”

The big news, however, is that UPS saw strong growth in average daily package volume in all of its products except the relatively low-yield International Domestic product. Particularly striking was the 9.3% increase in US Domestic Next Day Air volume – almost double the growth rate for full-year 2017, and in sharp contrast to the declining volume reported by FedEx for comparable products in its most recent quarter.

Looking now at the results by operating segment.

US Domestic Package: As mentioned above, UPS reported strong (9.3%) growth in volume for its high-yield Next Day Air product. This was complemented by 4.3% growth in Deferred volume, and 4.1% growth in Ground volume. The volume growth, combined with per-piece revenue rising an average of 2.6%, pushed segment revenue for the quarter to $10.28 million – up 7.2% over 1Q17.

International Package: Everything came up roses for UPS’ International Package segment in the first quarter. Package volume declined slightly (0.8%) for the International Domestic product, but this was more than compensated for by a 17.8% increase in per-package revenue. Add in the 11.5% jump in Export volume (and a 2.6% increase in per-package Export revenue), plus strong growth in international cargo revenue, and overall International Package segment revenue was up 14.9% to $3.53 billion. And, unlike in the Domestic segment, there were no headwinds to drive down operating profit, which rose 14.7% to $594 million.

Supply Chain and Freight: Revenue was up across all business units in the Supply Chain and Freight segment, led by a 26.8% jump in forwarding revenue to $1.61 billion – which UPS attributed to “revenue management initiatives and stable market conditions. Segment operating profit increased 14.1% to $170 million.