UPS manages strong growth in Q1 2016

In spite of a reduction in revenue growth due to lower fuel surcharges and currency exchange rates, UPS reported strong growth in net income for the first quarter of 2016, rising 10.2 percent, compared to the previous Q1, to reach US$1.13 billion. Operating profit rose by 9 percent, year-over-year, to $1.82 billion for the same quarter.

Total revenue for UPS increased by 3.2 percent to $14.42 billion, y-o-y, but on a currency-neutral basis, and adjusting for the impact of the drop in fuel surcharges, underlying revenue growth was more than 5 percent. Total average daily package volume also increased by 2.1 percent.

Average daily volume for the U.S. Domestic Package segment rose by 3 percent for Next Day Air and 3.3 percent for Ground shipments, which help overcome a 1.8 percent decline in Deferred Air volumes. U.S. domestic operating profit increased 7.6 percent to $1.1 billion, while costs per unit fell by nearly 2 percent, y-o-y, as a result of productivity enhancements from new technology as well as lower fuel costs. UPS also credited “high demand from e-commerce shippers” for much of its growth in the business-to-consumer market for Q1.

“We continue to execute well in all areas of our long-term enterprise strategy,” said David Abney, chairman and CEO of UPS. “The combination of revenue growth and benefits from our accelerated investments generated strong financial results in the quarter.”

One of the few sour notes in the Q1 report for UPS was in its International Package segment. Thanks to a decline in exports from the United States, which were offset by increases in shipments out of Asia and Europe, international export volume rose a meager 0.4 percent. International domestic volumes were down 3.8 percent, leading to an overall 2 percent decline in International Package volume. Still, operating profit for the segment was up 15.3 percent to $574 million, a gain UPS attributed to “disciplined pricing, combined with network efficiency gains.”

The Supply Chain and Freight segment also saw a 10.3 percent jump in revenue, y-o-y, to $2.4 billion, UPS said, mostly due to the acquisition of Coyote Logistics in the third quarter of 2015. However, UPS also said it experienced “weak market conditions in the air freight forwarding,” and that “LTL markets weighed on top-line growth.”

For its 2016 outlook, UPS said it expected to see continued strong growth in operating profit and reaffirmed its guidance for an increase in full-year earnings per share of between 5 percent and 9 percent.