UPS Takes $239 Million Loss in 4Q Because of Charge on Pension Assets
This story appears in the Feb. 6 print edition of Transport Topics.
UPS Inc. lost $239 million, or 27 cents a share, in the fourth quarter due to a one-time “mark to market” charge on pension assets worth $1.67 billion after taxes from what was an otherwise profitable period. For the last three months of 2015, the after-tax charge was $79 million.
Excluding the mark-to-market issues — related to rates of return on invested assets and discount rates — adjusted quarterly net income increased by 1.7% to $1.43 billion, the Atlanta-based parcel carrier said in its Jan. 31 earnings release. Quarterly revenue increased to $16.93 billion from $16.05 billion.
During the 2015 fourth quarter, the company earned $1.33 billion, or $1.48 a share.
Chairman and CEO David Abney emphasized the adjusted business results in the company’s earnings call, especially the growth of e-commerce opportunities, a high rate of capital expenditures enabling UPS to handle the volumes efficiently and the importance of international trade.
“The international segment [of UPS’ business] delivered another extraordinary performance, while the U.S. managed through considerable changes in product mix,” Abney said in assessing the quarter.
“Our strategies are creating long-term value for both UPS customers and share owners.”
When adjusted for pension costs, international package was the only major division to post a quarterly profit. The company’s managers said in the conference call that international operating income has been growing at a double-digit percentage rate, year-over-year, for eight straight quarters.
Domestic package volume grew by 5% to 19.55 million per day in the fourth quarter. Ground delivery grew by 5.4%.
While the fourth quarter is always UPS’ busiest, Abney said of this year’s onslaught, “Looking specifically at peak season … we delivered more than 712 million packages globally, a 16% increase over the same period last year. This record volume was driven by strong and steady e-commerce demand for a period.”
Abney said the company, No. 1 on the Transport Topics Top 100 list of for-hire carriers in the United States and Canada, will keep investing in technology to aid in delivery.
“While UPS is proactively evolving its network to move e-commerce volume growth efficiently, the accelerated investments are likely to weigh down near-term domestic package margins,” stock analyst Allison Landry wrote to clients of Credit Suisse after the conference call.
“The elevated [capital expenditure] calls into question whether e-commerce is more capital- intensive than previously understood, and it leaves less cash available for share buybacks.
“UPS is increasing capex in 2017 to $4 billion, or about 6% of sales, which would represent the highest intensity on a percentage of sales basis since 2006,” Landry said.
Revenue grew at the Supply Chain & Freight division that includes less-than-truckload carrier UPS Freight, but Chief Financial Officer Richard Peretz said adjusted profits decreased because both parts of the division, freight forwarding and LTL, are facing shippers’ markets as both industries currently have a surplus of freight-handling capacity.
On an annual basis UPS remained profitable despite the pension charge, earning $3.43 billion, or $3.87 a share in 2016, down from $4.84 billion, or $5.35 in 2015.
Annual revenue grew to a record $60.91 billion from $58.36 billion in 2015.
Abney also talked about political issues. He said he is a strong proponent of international trade and is “disappointed” the Trump administration withdrew from the Trans-Pacific Partnership.
Abney also did not want to side with the administration’s most severe critics, saying, “We don’t believe that the world is falling off the cliff.”
Even if UPS supports multilateral trade pacts, such as TPP, that appear to be out of favor, Abney noted that the Trump administration does want bilateral deals and they also offer benefits.
“In every country where the U.S., in the last 10 years, has reached a trade agreement, we have seen an actual real increase of packages entering our network going out to these countries. U.S. exports of a 20% increase, and 20% increase whether you get the benefit from many bilateral agreements or one multilateral agreement, you can see how that adds up.
“UPS is ready to help our customers navigate this period of change using the expertise we’ve developed as one of the world’s largest customs brokers,” Abney said.
FedEx Corp., UPS’ chief rival, also has been a consistent supporter of international trade.
Abney also said UPS management is looking forward to working with the Trump administration and Congress on corporate tax reform and an infrastructure program.
