Strong gains in package volume for UPS

UPS reported second-quarter net income up 3.2% y-o-y, to $1.27 billion, as total revenue rose 3.8% to $14.63 billion, driven by the strong operational performance of its air units. With the exception of Domestic Deferred Air, average daily package volumes were up for all products in both the US Domestic and International reporting segments, led by a 5.6% increase to U.S. Domestic Next Day Air. Even though Domestic Deferred Air package volumes were nearly flat (down 0.3%) this was on the back of a 14.6% jump between 2014 and 2015.  UPS 2Q16_v2

Breaking out each segment individually:

In the US Domestic segment, the company said that total revenue growth of 2.4% was buoyed by strong B2C (business-to-consumer) growth, even as industrial production and thus B2B (business-to-business) growth slowed.  Noting that growth targets for U.S. industrial production have been recently downgraded, the company outlined its position as a “steadfast proponent of trade.” According to UPS’ analysis of historical trade deals, U.S. exports have tended to grow by about 20% following the ratification of deals like the Trans-Pacific Partnership. Nonetheless, the e-commerce shopper’s strong demand for next-day delivery helped drive U.S. Domestic Package operating profit up 2.7% to 1.23 billion.

In the International Package segment, despite the continued weakening of other currencies against the US dollar and a weak cargo segment, revenues grew 1.1% to $3.08 billion. CFO Richard Peretz said during a call with analysts that “improvements in all international regions offset slower U.S. exports. Europe led the way with significant gains in cross-border products and export growth to all regions of the world.”  Average Daily domestic shipments within UPS’ international unit increased 4.5%, while International Export shipments were up a similar 3.9%. Operating profit meanwhile rose 11.1% to $613 million.

Revenue in the Supply Chain & Freight segment was up 13.2% to $2.54 billion, due to the acquisition of Coyote Logistics. UPS said, “the new truckload brokerage revenue offset tonnage shortfalls in international forwarding and the U.S. LTL business.” Overall adjusted operating profit for the Supply Chain & Freight segment fell 7.2% y-o-y, to $192 million as a result of overcapacity and weak margins.

Looking ahead, UPS says it will continue to benefit from “strong International performance” and that it expected full-year earnings to be up between 9% and 11% over 2015.


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