Double-digit profit growth for UPS

UPS, like its main competitor FedEx, turned in a solid performance in its most recent quarter.

UPS reported first-quarter net income up 10.2% y-o-y to $1.13 billion, as total revenue increased 3.2% to $14.42 billion. Operating profit for the quarter was up 9.0% to $1.82 billion.

Looking first at revenue: UPS said that “growth was slowed by lower fuel surcharges and currency exchange rates.” On a currency-neutral basis, and adjusting for the impact of the drop in fuel surcharges, underlying revenue growth was over 5%.

Turning to operations, total average daily package volume was up 2.1%, but the story was quite different in the US Domestic Package and International Package segments. International export volume rose slightly (0.4%), as increases in shipments out of Asia and Europe offset a decline in exports from the US. International domestic volumes, on the other hand, were down 3.8%, leading to an overall 2.0% decline in International Package volume. Operating profit for the segment was up 15.3% to $574 million, a gain UPS attributed to “disciplined pricing, combined with network efficiency gains.”

Things were brighter in the US Domestic Package segment, with average daily volume up 3.0% for Next Day Air and 3.3% for Ground. These gains were more than enough to offset a 1.8% decline in Deferred Air volumes, and UPS reported an overall volume increase of 2.8% in its US Domestic segment. As can be seen in the accompanying chart, per-piece revenue was down for both Next Day Air and Ground shipments, something UPS said was the result of lower fuel surcharges, and “changes in product and customer mix.”

The company highlighted the impact of e-commerce on its US Domestic operations, saying: “High demand from e-commerce shippers contributed to fast growth in business-to-consumer (B2C) deliveries this quarter.” Operating profit in the segment was up 7.6% to $1.10 billion.

In the Supply Chain & Freight segment, the 10.3% jump on revenue came mainly on the back of the acquisition of Coyote Logistics in the third quarter of last year, and UPS said “weak market conditions in the air freight forwarding and LTL markets weighed on top-line growth.”

Looking ahead, UPS said it expected the strong growth in operating profit to continue, and reaffirmed its guidance for an increase in full-year earnings per share of between 5% and 9%.

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