UPS reports second quarter earnings gains

UPS reported strong second quarter 2017 earnings results earlier today.

Quarterly revenue for the Atlanta-based transportation and logistics bellwether at $15.7 billion was up 7.7% annually, and earnings per share at $1.58 was up 11% compared to last year and ahead of Wall Street estimates of $1.46. Operating profit was up 8.7% at $2.2 billion.

“We are pleased with our performance and progress,” said UPS CEO David Abney on the company’s earnings call. “We had balanced performance in all segments this quarter and positive operating leverage in the U.S. We remain focused on the efficiency initiatives [underway], and we see strong growth opportunities for UPS, and we continue to invest in the next generation UPS Smart Global Logistics Network and to implement strategic initiatives.”

Abney added that UPS also remains focused on investing heavily in new capacity and connected technology to capture the tremendous e-commerce and international growth opportunities it sees to fuel long-term profitable growth and enhanced shareholder value.

Individual segment results: 

• U.S. domestic revenue rose 8.1% to $9.7 billion, with operating profit up 13.1% at $1.395 billion, average daily U.S. domestic package volume up 4.9% (Deferred Air products up 11%, Next Day Air up 0.6%, and Ground products up 4.2%. Revenue per package rose up 3%, with Next Day Air up 1.6% at $19.62, Deferred up 2.3% at $12.72, and Ground up 3.2% at $8.37. UPS cited e-commerce driving higher demand for UPS Air and Ground products and gains in package per shipment;
• International Package revenue was up 2.8% at $3.163 billion, with UPS citing increased demand for cross-border shipments, while export growth was solid across all regions. Total daily International Package volume was up 5.6%, with daily international domestic and export packages up 1.3% and 11.6%, respectively. Average revenue per package dropped 2.3% to $16.31; and total consolidated revenue per package for U.S. domestic and international packages rose 1.7% to $10.75; and
• Supply Chain and Freight revenue was up 12% to $2.842 billion, due to teams in each business unit executing on revenue quality improvements coupled with structural cost reduction programs, and tonnage gains in Freight Forwarding and UPS Freight (LTL) contributing to improved top-line results, with economic conditions improving in non-retail markets. LTL revenue was up 8.7% at $652 million, with revenue per hundredweight up 0.6% at $23.62, and shipments up 3.7% at 2.633 million

UPS CFO Richard Peretz said on the call that UPS earlier this year laid out its full-year 2017 plan, as well as its three-year target.

“At the mid-point of the year, the business is performing as expected, and we are pleased with our progress,” he said. “Net fuel year-over-year was a benefit. In 2016, fuel prices accelerated throughout the quarter from April to June and at the time we had a two-month fuel surcharge revenue delay and were unable to offset the increase in fuel prices. In early February, we adopted a two-week revenue lag. In addition, there were other fuel policy changes that increased the overall revenue-to-expense coverage ratio.”

Jerry Hempstead, president of parcel consultancy Hempstead Consulting, told LM that UPS’s strong quarterly performance serves as evidence it is hitting on all cylinders.

“The international strength was expected as FedEx was struck by a computer virus in its TNT operation and forced some shippers to migrate their business to UPS,” he said. “This will manifest itself more in Q3 as the TNT issues are ongoing. The longer the situation persists the greater the benefit to DHL and UPS. Amazon Prime Day was not in this quarter so that too will reveal its impact in Q3. Overall, it bodes well for UPS looking forward.”