UPS sees growth from e-commerce, life sciences as net income decreases

Today, in UPS’ earnings call for 2018 results, the company reported a 2 percent decline in total net income from about US$4.9 to $4.8 billion between 2017 and 2018.

Looking specifically at the fourth quarter – not accounting for adjustments – net income decreased 59 percent from $1.1 billion to $453 million, year-over-year. However, adjusted net income during quarter four was up 17 percent, from $1.4 to $1.7 billion year-over-year, largely due to growth within UPS’  International Package segment.

Adjusted operating profit (EBIT) across all segments for the 2018 year was about $7.4 billion – a two percent decrease from $7.5 billion in 2017.

Looking at the whole year divided by segment, International Package and Supply Chain & Freight both pulled in respectable adjusted operating profit margins of 7 percent and 13 percent – to $2.6 billion and $901 million, respectively, while U.S. Domestic declined by 10 percent to $3.9 billion.

Zooming into the fourth quarter, while revenue rose across all segments, International Package was the only segment that increased operating profit, year-over-year – by just over 6 percent, to $781 million. U.S. Domestic Package and Supply Chain & Freight both saw EBIT decline, by 8 percent to $999 million and 7 percent to $224 million, respectively.

UPS said strength in its International segment was driven by its “broad portfolio, diverse revenue base and flexible network,” which it said helped “buffer the impacts of global economic softening.”

During the earnings call, David Abney, UPS chairman and CEO, said e-commerce business was a significant contributor to growth in the segment. “Small and midsized businesses that don’t get talked about nearly as much as larger e-tailers are certainly playing a big role in this market,” he said, and added “and then healthcare and life sciences. All of those, we think are good, good opportunities.”

UPS noted that the decline in its U.S. Domestic segment was anticipated, pointing to “planned pension expense, start-up costs for several large facilities, and one less operating day than in the prior year’s fourth quarter.”

Regarding Supply Chain & Freight, the company said the segment’s operating profit was reduced “as a result of the UPS Freight contract ratification process,” and that “profitability for the other business units was positive, led by gains in Forwarding,” reiterating a similar sentiment from its Q3 statement.

Looking forward to 2019, UPS said it plans to increase operating profit in the “low teens” across all three of its business units.