An exceptional quarter for UPS

UPS 4Q15If you have been following the news from the express and e-commerce industries lately, you could be forgiven for thinking that the big US integrators are in serious trouble, trembling at the thought of Amazon not only pulling its business from UPS and FedEx, but also competing for their remaining business.

Perhaps that will happen at some point in the future, but as of today, UPS is stronger than ever, reporting fourth-quarter 2015 net income up almost 200% y-o-y to $1.33 billion, as total revenue rose 1.0% to $16.05 billion. Reported operating profit for the quarter was up 172% to $2.05 billion.

These spectacular jumps in net income and operating profit paint a somewhat unrealistic picture of the year-over-year differences, but even after adjusting for one time charges in both 4Q14 and 4Q15 (see below), it is safe to say that UPS capped a very strong year with an exceptionally strong quarter, and that it expects to continue that strong performance through the coming year.

Regarding the charges, the fourth quarter 2015 results include a $79 million mark-to-market pension charge, while fourth quarter 2014 results include a $692 million charge, partly related to mark-to-market pension charges and partly to the transfer of healthcare liabilities. Adjusting for these one-time charges, net income in the fourth quarter of 2015 was up 23.1% to $1.41 billion, while operating profit climbed 17.1% to $2.17 billion.

As has been the case with most companies in the air freight and express industry, UPS saw falling fuel prices and a strengthening US dollar take a bite out of its revenue, reflected in declines in per-package revenue, but this clearly had little impact on the bottom line, as all of the company’s operating segments saw solid gains in adjusted operating profit.

Of particular interest is the double-digit growth in average daily package volumes in the US domestic express business, with Next Day Air up 10.0% and Deferred Air up 14.8% compared to 4Q14. UPS said that this growth was driven by “strong demand from e-commerce shippers.”


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