UPS reports solid Q4 and full-year 2018 earnings results

Atlanta-based transportation and logistics bellwether UPS reported strong fourth quarter 2018 earnings results earlier today.

Quarterly revenue, at $19.8 billion, headed up 4.6% annually, and adjusted earnings per share, at $1.94, was up 17% and beat Wall Street estimates of $1.90. Full-year 2018 revenue rose 7.9% annually to $71.0 billion, which UPS said was paced by shipment growth and a 4.3% increase in revenue yield gains.

“We achieved our 2018 adjusted earnings-per-share goal by successfully executing Transformation investments and initiatives that lifted revenue quality and improved efficiency,” said David Abney, UPS chairman and CEO, in a statement.  “Our diverse portfolio, global footprint and flexible network position UPS for profitable growth in 2019 and beyond.”

Individual segment results for Q4:

• U.S. domestic package revenue increased 6.3% to $12.6 billion, with operating profit at $999 million, down annually to last year’s $1.087 billion. Average daily shipments were up 3% to 21.2 million, with Next Day Air up 4.1% at 1.789 billion, Deferred up 4.8% at 1.962 billion, and Ground up 2.4% at 17.4 billion. Revenue per package was up 4.8% at $9.55, with Next Day Air up 4.6% at $19.01, Deferred up 4.1% at $12.64, and Ground up 4.3% at $8.24;
• International Package revenue on an adjusted basis was up 2.9% at $3.829 billion. Domestic international package average revenue per piece was up 4.3% at $6.58, with export average piece per package revenue up 1.4% at $28.82; and 
• Supply Chain and Freight revenue was up 0.7% annually at $3.444 billion, with revenue reduced roughly $60 million, due to the UPS Freight contract ratification process. LTL revenue was down 10.8% to $584 million, and LTL revenue per hundredweight was up 6.9% at $26.36. Total quarterly shipments were down 18.7% at 2.010 million, and shipments per day at 32.4 thousand were down 20%

Jerry Hempstead, president of Hempstead consulting, said that package pricing and yield was key to earnings improvement, as was the case in 2017.

“This means there are higher costs to ship a package,” he said. “UPS appears to be emboldened by their success to turn up the price. They had a record quarter (which has been verified by third parties), but the fact that the weather was mild and free of major storms particularly over the ten days before Christmas facilitated their success.”

And he added that these its performance metrics show that the UPS Next Day air product is very robust, coupled with Deferred air up a healthy amount year over year.

“Part of it is driven for the passion for two-day delivery in the B2C world,” he explained. The ground number is a bit disconcerting as it looks like we may be at a point of diminishing returns on the growth of B2C business. The number is getting so big it’s hard to grow year over year. The same is evidenced in the International numbers, where UPS is trying to show growth after their windfall of TNT business that occurred in 2017, when TNT was crippled by the cyber attack. That influx of business helps the business for 12 months but then you have to figure our what to do to show YOY growth over that. The revenue and yields paint a picture of the annual GRI sticking in a big way and that also was manifested in yield growth. That translates to [shippers] as higher costs to move a package.”

Regarding its expectations for 2019, UPS CFO Richard Peretz said that the company plans to generate substantial increases in operating profit across each of its business units.

UPS said it expects growth on the following fronts:

• total adjusted operating profit growth in the low-teens with all segments up double-digits;
• adjusted, diluted earnings per share to be in a range of $7.45 to $7.75, which includes pension financing costs headwinds of about $325 million;
• the 2019 effective tax rate should be between 23 and 24%; and
• capital expenditures are planned between 8.5% and 10% of 2019 consolidated revenue