UPS 1Q Income Rises 2.4%
This story appears in the May 1 print edition of Transport Topics.
UPS Inc. struggled with currency exchange rates but benefited from a new treatment in taxes and wound up with a 2.4% gain in first-quarter net income and a 6.2% surge in global revenue.
UPS, based in Atlanta, earned $1.16 billion, or $1.32 a share, on sales of $15.32 billion for the three months ended March 31, the company reported April 27. In the year-ago quarter, North America’s largest trucking company posted a profit of $1.13 billion, or $1.27, on revenue of $14.42 billion.
Chairman and CEO David Abney and Chief Financial Officer Richard Peretz said in the earnings call that business was strong in Europe and the freight forwarding segment did well, but the strong U.S. dollar versus other currencies hid some of that. First-quarter operating income for all of UPS declined, year-over-year, to $1.78 billion from $1.82 billion.
The company calculated a currency-neutral statistic, assuming static exchange rates, which showed quarterly operating income of $1.9 billion.
UPS said currency fluctuations cost the company $119 million in the first quarter, and the effect could top $400 million for the full year.
Domestic packages, the largest segment, posted a 5% gain in quarterly revenue to $9.54 billion, with a 2.4% decline in operating income to $1.08 billion.
Business-to-customer shipping, a key element of e-commerce, continued to grow, largely at the expense of traditional retailers with stores.
Abney said the company has expanded its weekend operations from a test in three cities to 15 major U.S. metropolitan areas now and a goal of 4,700 cities by the holiday shipping season this year. A major part of the business model, he said, is for Saturday pickups to become Monday deliveries.
UPS Freight, the company’s less-than-truckload carrier, reported growth in tonnage and pricing. Yield, measured as LTL revenue per hundredweight, inched up 1.5%, year-over-year, to $23.60 in the quarter just ended.
Shipments per day rose 4.2% to 39,300, and gross weight hauled jumped 8% to 2.62 billion pounds for the quarter.
The Supply Chain & Freight division, which includes the LTL carrier, had the strongest quarterly performance of the three major segments.
Operating income surged 21.8% to $179 million from $147 million in the 2016 quarter, and revenue leapt 12.5% to $2.72 billion over the same time.
Jim Barber, president of UPS International, said of his division, “The last couple of years have been challenging, but we’re seeing strong growth in the middle market, a very balanced distribution.”
On taxes, the company is treating its use of stock compensation in accordance with a Financial Accounting Standards Board update published last year. Peretz, the CFO, said it will affect first-quarter taxes. This year, they declined by 12.5% to $539 million from $616 million, enough to turn a decline in net income into an increase.
Abney began the call by discussing UPS’ investment in technology to enhance its “smart global network.” He said the changes would create “the most sweeping transformation of our network in decades,” increasing the operational efficiency of employees and vehicles, and improving the experience for customers in using UPS.
