UPS Inc.’s Profit Surges 66% in First Quarter
This story appears in the May 2 print edition of Transport Topics.
UPS Inc. said its first-quarter profit jumped 66% from a year earlier, as revenue grew 7.3%, helping boost net income over the earlier three-month period that was beset with lower volumes and several one-time charges, the Atlanta-based corporation said on April 26.
UPS, the largest company in North American freight transportation, generated more revenue and earned more profit from all three of its major divisions: domestic package, international package and supply chain/freight. The results led management to raise guidance for annual earnings.
The company earned $885 million, or 88 cents a share, on revenue of $12.58 billion. In the first three months of 2010 the company earned $533 million, or 53 cents a share, on revenue of $11.73 billion.
Scott Davis, UPS chairman and chief executive officer, told analysts during a conference call that the improvement came “despite the obstacles we faced, like unrest in North Africa and the Middle East, skyrocketing fuel costs and some of the worst weather conditions in years. So far, the global economic recovery has been resilient, yet the risks are a little greater than they were three months ago.”
In trying to assess the torrent of financial developments, Davis said there was good news in that U.S. unemployment is declining, but high oil prices are causing forecasters to trim their growth projections. In addition, Japan’s future is uncertain.
Davis and Kurt Kuehn, chief financial officer, told analysts they expect the company to produce net income of $4.15 to $4.40 a share for the full year. On Feb. 1, the company offered guidance of $4.12 to $4.35.
At UPS Freight, the less-than-truckload unit, quarterly revenue expanded by 21.9% to $545 million. UPS does not report operating profit for its LTL carrier — the nation’s fourth largest — but Davis and Kuehn said Freight lost money during the first quarter of 2010 and, in the quarter just ended, it was “approximately break-even.”
The Freight division posted an 8.4% increase in revenue per hundredweight to $20.54, but Kuehn said slightly more than half of that came from fuel surcharge revenue. Freight also had a 10% year-over-year increase in the number of LTL shipments it moved and a 12.4% increase in tonnage hauled. The average weight of an LTL shipment ticked up by 2.1% to 1,051 pounds.
Kuehn said he expects Freight to contribute to UPS’ profit margin in the second half of the year.
In addition to its well-known domestic brown trucks, UPS has a cargo airline for the international transport of parcels and freight. Davis said the nation benefits strongly from international trade and urged Congress to approve pending free-trade agreements with South Korea, Colombia and Panama.
Davis also touted the company’s use of alternative-fuel vehicles, including highway tractors fueled by liquefied natural gas. President Obama visited a UPS facility in Maryland in April to talk about alternative fuels.
Supply Chain & Freight, the smallest of the three divisions, grew the most, with a 147.2% increase in operating income. Domestic Package, the largest, had a 51.1% increase, while International Package’s profit grew by a modest 4.4%.
Results from the 2010 quarter were restrained by $175 million in one-time charges.
“UPS’ headline numbers for the first quarter were impressive, especially in the face of skyrocketing fuel prices, horrible weather and increased global economic and geopolitical uncertainty,” said analyst Peter Nesvold of Jefferies & Co.
“In particular, UPS showed substantial progress in pricing — up 5.2%, year-over-year, in the first quarter, versus 3.3% in the fourth quarter — especially in the domestic package business,” Nesvold said.
Commenting on UPS and its main competitor, FedEx Corp., Nesvold said the two companies “are domestic pricing stories, not volume stories. UPS is undergoing a series of material corporate initiatives that we believe will substantially improve the company’s earnings power over the next several years.”
Kuehn closed the conference call by advising that, “We did increase our guidance for the year. But it’s not based on an estimate of increased demand across the globe. . . . So it’s more an affirmation that we feel the company is operating well than that the global economy has got a lot of upside. We’re not gloomy on where the world is heading, but we’re also cautious [and] we’re confident that we can adapt to conditions as they occur.”
