UPS Reports Profit Growth As LTL, Package Rates Rise

UPS Inc. last week said strong results in its less-than-truckload unit, where revenue rose 15%, helped the company to report a 5.1% increase in third-quarter net income to $1.04 billion.

Revenue overall increased 8% to $13.17 billion, a boost that was achieved almost exclusively from higher prices, particularly at the LTL unit known as UPS Freight. Earnings in the third quarter of last year were $991 million, including a $61 million gain from real estate sales.

The reliance on higher rates, including 6.5% more revenue per piece in the domestic package business, was in contrast to an increase of less than 1% in total package shipments. “UPS produced another solid quarter of earnings growth against the backdrop of a deceleration in exports from Asia and a challenging global economic environment,” said CEO Scott Davis.

In the freight sector, Chief Financial Officer Kurt Kuehn said the LTL unit “had a good quarter.” He added that, “We continue to be pleased with our progress there.”

Revenue at the less-than-truckload business climbed to $667 million. Revenue per 100 pounds of freight was 13% higher, while total shipments handled per day dropped 1.1%.

UPS didn’t disclose specific LTL operating income results. However, Kuehn did say during an Oct. 25 conference call that the company is about two-thirds of the way to its goal of a 6% operating margin by 2014. That indicates a 4% margin for the quarter, which would result in operating income of about $26 million, based on the third-quarter revenue.

On a broader level, UPS projected some optimism on the U.S. economic front, while stressing the need for more aggressive domestic and overseas moves by public officials.

“We are starting to see a number of developments that give me optimism,” Davis said on a conference call, citing stronger manufacturing and retail demand. “The outlook for the rest of the year is slow growth. As the U.S. economy stabilizes, you will see demand pick up — this quarter or next.”

Referring to budget-cutting in the United States and efforts to deal with Europe’s debt issues, Davis said, “If we can get some decision-making done in Washington and Brussels, you will see some further pickup.”

He also stressed 9% volume air package growth in Europe during the quarter, despite financial uncertainty.

In addition, Davis said there could be a surge in airfreight shipments during the fourth quarter, particularly from Asia, because inventories are lean in the United States.

Weak third-quarter demand in the Asia-to-U.S. market forced a 10% cut in capacity.

UPS officials shied away from a holiday shipping forecast, saying there was still uncertainty about consumer demand that wouldn’t be known two weeks before Christmas.

UPS volume was 15.1 million packages, including domestic and international shipments in the U.S. and abroad, up 0.7% from the year earlier.

In the domestic package business, revenue increased to $7.77 billion, or about 60% of the revenue generated by the company that ranks No. 1 on Transport Topics Top 100 For-Hire Carriers in the United States and Canada.

Operating income, which excluded interest and taxes, was $1.02 billion in the package business. In the year-earlier quarter, operating profit was $910 million, excluding the real estate gain and $1.02 billion including that one-time profit.

Domestic ground package volume was unchanged at 10.69 million pieces, a result that UPS linked to the slow U.S. third-quarter economy.

UPS international package business suffered a drop in operating profit to $409 million from $419 million, despite an increase in revenue of more than 14% to $3.06 billion. Export volume from the United States grew 6.5% and revenue per shipment was 9.4% higher because of increased fuel surcharge collections, currency effects and rate increases.

The international package business also was hurt by a drop in package volume and excess capacity on the Asia-U.S. freight route.

In the supply chain business other than freight, UPS said its forwarding business “expanded operating margin and slightly improved operating profit.”

Earnings per share including the real estate gain improved to $1.06 from 99 cents, a rise of 7.1%.

Earnings per share rose faster than net income because the UPS share count fell to 987 million in the third quarter from 1.04 billion in the year-earlier period.

The Atlanta-based company said it continues to expect earnings of between $4.15 per share and $4.40 per share for this year.