UPS’ Net Income Rises 13% in 1Q
This story appears in the May 4 print edition of Transport Topics.
UPS Inc. last week announced net income rose 13% to $1.03 billion, or $1.12 per share, in the first quarter, as profitability improved in domestic and international businesses.
Additionally, the company announced that Chief Financial Officer Kurt Kuehn, 60, would retire next month.
Profit before interest and taxes in the U.S. package unit was 11% higher at $1.02 billion, while the international package sector climbed 14% to $498 million.
Revenue rose 1.4% to $14 billion.
In a modestly improving global economy, total shipments rose 2.8% at the Atlanta-based company that ranks No. 1 on Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers.
“We are on track for our long-term financial initiatives,” said CEO David Abney. “The first-quarter results were favorably impacted by our continued investments and revenue management initiatives.”
Last year’s first-quarter net income was $911 million, or 98 cents.
On the company’s conference call April 28, Abney reaffirmed the company’s full-year forecast that earnings could rise as much as 12% on a per-share basis.
He said that the earnings forecast of $5.05 to $5.30 a share is being maintained despite mixed signals from the United States and some other countries’ economies.
“UPS is off to a good start to 2015,” said a report from Arthur Hatfield, a Raymond James analyst, who highlighted the potential to improve pricing and profitability. “The first quarter shows that the company has the ability to move in that direction.”
Hatfield’s report noted that the pricing and earnings potential could be a benefit in the fourth quarter, when UPS enters the holiday seasonal peak shipping period.
Domestic package revenue rose 3.8% to $8.8 billion. U.S. Package business, other than next-day air shipments, improved, with an overall 2.4% rise in average daily package volume and 1.3% more revenue per piece.
The International side showed faster growth rates, and package volume rose 4.6%. The international package revenue per piece was 10% lower.
International rates were affected by the weakened value of foreign currencies relative to the U.S. dollar. Currency exchange effects sliced $227 million off international revenue, the company reported. Excluding the currency effect, international revenue of $3 billion was 2.4% higher.
The unit that includes UPS Freight and supply chain services showed 6.9% higher profit at $151 million, with 1.3% higher revenue of $2.2 billion. Revenue increased 2.3% at UPS Freight, helped by higher rates.
UPS Freight raised revenue by $16 million to $710 million, offsetting a $3 million drop in forwarding and logistics revenue to $1.33 billion. Revenue at its truckload service was $101 million, an 11% increase. UPS Freight’s profit wasn’t disclosed.
Meanwhile, less-than-truckload revenue growth was restricted by lower fuel surcharge collections. On the positive side, LTL shipments per day rose 3.5%. However, LTL revenue inched up 1% to $609 million.
UPS officials acknowledged they decided not to renew some contracts with low profit margins, without providing details.
“It’s not like we want to walk away,” Abney said. “We want our customers to come back.”
Changes in pricing to base some lighter packages on their dimensions helped to raise rates.
When asked about the effects of the planned $4.8 billion purchase of Dutch company TNT N.V. by FedEx Corp. and other changes in global logistics, Abney said, “We expect the regulatory agencies will be as stringent on this deal as they were previously.”
His was referencing the opposition of European regulators to UPS’ attempt to buy TNT, which prompted UPS to withdraw its $6.8 billion offer.
UPS announced that its controller and treasurer, Richard Peretz, 53, will take over the CFO post after Kuehn retires June 30.
Peretz has been there for 34 years, serving in operational and corporate leadership positions within the Finance staff.
“Richard brings to the CFO position deep functional experience in corporate and international leadership assignments,” Abney said.
Kuehn, a 38-year UPS veteran, held the CFO post for eight years.
