UPS Supply Chain and Freight lead in 2Q

UPS reported a double-digit (13.0%) year-over-year decline in operating profit during the second quarter, as the U.S. Domestic Package sector fell by 25.2% in the quarter. Meanwhile, the company’s Supply Chain & Freight unit stood out as a particularly strong performer during the quarter, with reports of 23.2% growth in Forwarding and 13.0% growth in Freight revenue during the quarter.

UPS Chief Financial Officer Richard Peretz attributed the U.S. Domestic Package segment’s decline to “higher pension expense and project related costs.” He added that going into 2019, UPS will focus on improving yields and getting recently expanded and new facilities up to full operating capacity to improve margins. Reported net income for the quarter, on the other hand, increased by 7.3%.

Regarding the current trade war and protectionist rhetoric surrounding recently levied tariffs by US President Donald Trump, UPS said it has seen no significant impact but that it is “closely monitoring the trade landscape.” The company has a strong outlook on the US economy – where it expects annual GDP growth to remain at or above 3% – and is optimistic on continued growth in Asia generally and China, in particular.

Looking at the results by operating segment:

US Domestic Package: UPS reported lackluster 2.0% daily package volume growth for its Next Day Air product, down from the substantial 9.3% increase reported during the first quarter. Deferred Air volumes fell 2.2%, while Ground volumes saw the strongest growth in the segment, at 3.1%. Total US Domestic Package volume rose by 2.6%. Despite the decline in average daily volumes, however, the Deferred Air product saw an increase in revenue during the quarter, rising 8.2% on average per package. Next Day Air and Ground also saw increases in average revenue per piece, of 2.4% and 3.6%, respectively.

International Package: This segment was a robust performer for UPS during the second quarter, although growth slowed from the even stronger growth reported for the first quarter. Although volumes for the Domestic product increased by only 2.0%, revenue in the segment per piece was 10.0% higher than during the same quarter in 2017. Export volumes increased 9.5%, with revenues for the product rising 3.4%, and Total International Package volumes increased 5.4%, with a corresponding 7.3% increase in per-piece revenue.

Supply Chain and Freight: Revenues increased across every business unit in the Supply Chain and Freight segment. The Forwarding and Freight units stood out as particularly strong performers during the quarter, with reports of 23.2% and 13.0% growth in revenue during the quarter. UPS attributed Forwarding’s strong quarter – the third quarter in a row in which the business unit saw double-digit gains – to higher tonnage and improved pricing.