UPS reports solid 3Q earnings results in advance of holiday swing

Atlanta-based global transportation and logistics services providerUPSreported solid third quarter earnings results today.

Quarterly revenue was up 7.3% annually at $17.4 billion, while earnings per share at $1.82 were up 26% (topping Wall Street estimates of $1.81 per share), with net income up 16.6% at $1.508 billion.

UPS Chairman and CEO David Abneysaid these quarterly results showed positive and sustained momentum for the company.

“The U.S. domestic segment showed strong yield improvement as the initial impact of our disciplined pricing and improved customer mix lifted our performance,” he said on the company’s earnings call this morning. “We continue to incur near-term expenses for the expensive upgrade to our U.S. network, where we are opening a record amount of highly-automated capacity. Our international segment generated higher revenue, even on top of last year’s exceptional growth level. Margins remained at industry-leading levels, and we recorded out second highest ever Q3 operating profit ever, even with commodity headwinds and changing trade policy. Supply chain and freight units continued to deliver strong performance. These units benefitted from revenue diversification, focused growth strategies and…market share gains.”

Individual segment result for Q3:

• U.S. domestic revenue increased 8.1% to $10.4 billion, with operating profit at $949 million, down from $1.011 billion a year ago. Average daily shipments were up 3.3% to 16.4 million, with Next Day Air up 3.7% at 1.526 million, Deferred was up 1.3% to 1.256 million, and Ground was up 3.4% to 13.624 million;
• total U.S. domestic revenue per package was up 4.8% to $10.10, with Next Day Air up 3.3% to $19.72, Deferred up 5.2% to $13.47, and Ground up 5.1% to $8.71
• International Package revenue headed up 3% to $3.478 billion. Domestic international package average revenue per piece was up 3.4% at $6.47, with export average piece per package revenue up 0.8% at $29.32; and total international daily package volume down 0.2% to 3.1 million shipments per day
• Supply Chain and Freight revenue was up more than 12% annually at $3.5 billion, and LTL revenue was up 11.4% at $867 million, due to higher pricing and heavier shipments, and LTL revenue per hundredweight was up 5.1% at $25.70. Total quarterly shipments were up 0.5% at 2.603 million, and shipments per day at 41,300 were up 0.5%

In regards to the 2018 Peak Season UPS COO Jim Barber said on the call that the added capacity UPS has brought on through its extensive facility expansions and upgrades this year is a big boost to the company’s peak preparations.

“As in year’s past, we expect record demand between Black Friday and New Year’s Day,” he said. “We have developed our most comprehensive plan ever, and it is the product of a highly coordinated effort across operations, engineering, sales, and many other parts of the UPS organization. Our plan fully considers the unique needs of those customers, who, like UPS, flex their network right up to nearly double to take advantage of this important time of the year. At the same time we are clearly focused on our other customers who rely on UPS’s reliable service to ensure healthcare, critical inventory, urgent repair parts, or other important deliveries arrive on time.”

Barber said that during the holiday sales season in November and December, UPS expects to deliver around 800 million packages during this period, and UPS is preparing to deliver 30 million packages on 19 of 21 operating days during that span. UPS expects to deliver more than 37 million packages worldwide on its peak operating day.

“We have a comprehensive plan in place to collaborate with more customers, greatly expand network capacity through facilities and technology, coordinate daily volume schedules, and, of course, control the package characteristics in our network,” he said.

UPS has myriad key elements to execute on this plan, he explained, including:

• 合作demand forecasts with customers who represent 80% of the volume surge and includes harmonizing the daily shipment needs of its peak customers by product and customer location;
• UPS has completed a redesign of its network capacity, with its new peak alignment volume tools synchronizing volume demands from both origin and destination capacity, which helps to ensure network reliability for customers;
• significant facility and technology investments to provide new capacity and network resources for Peak Season, opening 22 new or retrofit facilities globally with between 25%-35% higher efficiency than traditional buildings;
• bringing online 400,000 pieces per hour of additional sort capacity before the holiday season, which Barber said greatly improves flexibility to manage peak demand;
• added six 747-8s and three 767-300s to its fleets since last year, increasing its international capacity and cascading smaller aircraft to serve key U.S. routes

“UPS is doing a great job managing its business, but it may not elate Wall Street however,” said parcel expertJerry Hempstead, president of Hempstead Consulting．“For example, at this time last year, UPS was awash with international business that it had taken away from TNT (now part of FedEx) because of a cyber attack that took the TNT systems down. Now ,Wall Street is looking at year over year and scratching its head wondering why 25% growth slowed to 3%. Well, UPS took what they would take from TNT and that is non-recurring. That said, everything domestic and international is growing in packages, and that’s’ the real measure of success in the parcel business. Revenue was up per shipment, particularly notable was the 5% increase in ground revenue per piece, which means two things, first pricing discipline by sales, and second, the rate increase in January and the increases in accessorial charges are sticking. That translates to [shippers] as ‘its going to be costing me more to ship.’”