Forwarding boosts unit operating profit for UPS in Q1

UPS reported first-quarter 2019 net income was down 17.4% year-over-year to $1.11 billion, on revenues that were up slightly (0.3%) at $17.1 billion. Operating profit for the quarter declined 8.3% to $1.39 billion, as the company was hit by forecasted “headwinds” and a series of severe winter storms that impacted the company’s US Domestic segment.

Looking beyond the financials, however, demand for airlift remained robust, with average daily volume growth for air services up 8% y-o-y, according to Richard Peretz, CFO, UPS, during a call with analysts.

The impact of the ten 747-8Fs that UPS has gradually added to its network is also starting to become apparent as UPS Airlines deploys the larger freighters. Most recently, UPS Airlines has started utilizing the aircraft on routes between Hong Kong and Europe. Even as slowing global trade has translated into declining air cargo traffic for many Asia-Pacific carriers in Q1, UPS said express volumes bound for the United States ex-Asia Pacific were up 3% y-o-y during the quarter. Volumes out of Asia Pacific to Europe were up 2%.

Regarding the ongoing trade war between the United States and China, David Abney, CEO of UPS, told investors, “the company still believes in China.” Elaborating on the commitment, Abney said UPS operations in Guangdong Province and in Hong Kong were well positioned to target other APAC growth markets. “We’re going to trade in and around China, and however China evolves in the world, we’ll move our network to support it,” added Abney.

Looking now at the results by operating segment:

US Domestic Package: UPS reported volumes up 8.8% for its high-yield Next Day Air product. This was complemented by 6.7% growth in Deferred volume, and 1.0% growth in Ground volume. The volume growth, combined with per-piece revenue rising an average of 1.8%, pushed segment revenue for the quarter to $10.48 million – up 2.5% over 1Q18.

International Package:  Despite volumes that were slightly higher across UPS’ International Package segment, revenues for the unit were down 2.1% to 3.46 billion as revenue-per-piece dropped 1.2%. Package volume increased 1.1% for the International Domestic product, though per-package revenue dropped 3.6%.  Export volumes were nearly flat (up 0.3%), but this was matched with a 0.3% drop in per-piece revenue.

Supply Chain and Freight: Revenue was mixed across the Supply Chain and Freight segment. Forwarding revenue dropped 11.8% to $1.4 billion on Lunar New Year disruptions, which softened outbound demand out of Asia. Despite the lower revenues, Peretz said profits for the unit remained strong because of better spreads between freight procurement and sales. Segment operating profit increased 17.6% to $200 million.