UPS’ Profit Drops 43% in 1Q
This story appears in the April 27 print edition of Transport Topics.
UPS Inc. said its first-quarter profit was driven down 43% amid a global recession that hurt every portion of the company.
Earnings were $517 million, or 52 cents per share, excluding a $116 million charge for writing off older aircraft that will be retired and sold. That charge brought net income to $401 million, or 40 cents a share.
A year ago, the company earned $906 million, or 87 cents a share. Revenue for the 2009 quarter was 14% lower at $10.9 billion.
Performance at UPS Freight, the less-than-truckload unit was “less bad than most” competitors, Chief Financial Officer Kurt Kuehn said on an April 23 conference call. UPS Freight posted an unspecified loss as its revenue fell 11.5%.
No immediate economic improvement is expected, since the company said second-quarter gross domestic product and industrial production will likely be lower than last year, though the pace of the decline will be slower than the first quarter.
UPS Freight and Supply Chain businesses are reported together in corporate earnings. The businesses’ profit was 65% lower on an operating basis than last year, with a first-quarter profit margin of 2.3%, down from 5.2% a year earlier. Operating profit excludes interest and taxes.
UPS did not say how much the LTL operating losses were, or disclose profitability in the year-earlier period.
Profit margins were higher at the domestic package and international package units, reaching 5.5% in the package segment and 13% internationally.
Domestic package revenue declined 10% to $6.95 billion and international package revenue was off 19% to $2.2 billion.
Revenue per piece fell 5% for the ground unit and 15% for the international unit, partly because of lower fuel surcharge revenue.
“While we have no doubt UPS will emerge intact from the current recession — and probably stronger than it started — the next few quarters will likely be tough,” UBS analyst Rick Paterson said in an investor note.
Wachovia Securities analyst Justin Yagerman said in an investor note that profit was hurt by “worse-than-expected cost controls. Volumes and pricing were in line with our expectations.”
UPS has taken cost re-duction steps that included freezing the salaries of managers in March and reducing its workforce by 10,000 people. The reduction, which includes both Teamsters hourly workers and managers, represents between 3% and 4% of the U.S. workforce, Kuehn said on a conference call.
Shipments were actually up in March,” Kuehn said, speaking about UPS Freight. “That is swimming against the tide. We feel very good that we are building some momentum.”
Other LTL companies have reported tonnage declines approaching 30%.
UPS Freight tonnage fell 7% and weight per shipment declined 5%.
UPS Freight revenue fell 11.5% to $454 million from $513 million, with LTL revenue 13% lower at $423 million, and revenue per hundredweight for those shipments down 6% to $17.29.
Total shipments fell less at 2.2%, totaling 2.34 million. Because there was one less working day in the quarter, shipments per day dropped 0.5% to 37,200.
The revenue drop at UPS Freight was less than the 23% decline in the Supply Chain segment that includes forwarding and logistics.
Earnings in the second quarter will be between 45 cents and 55 cents
a share, Kuehn said. That could mean a decline of 40% or more from last year’s 85 cents a share in the quarter.
A drop of between 4% and 6% is expected in domestic package volumes, which account for nearly two-thirds of UPS revenue with margins that will be “challenged,” Kuehn said. International package volumes are expected to drop 3%, with some improvement expected in margin because of cost initiatives.
The company didn’t give a forecast for its LTL and supply chain businesses.
Chief Executive Officer Scott Davis said UPS gained market share from the closing of DHL Express ground operations in the United States. UPS claimed to capture more than half of the revenue resulting from that shutdown last year.
