Busy first quarter for UPS as it reports a respectable increase in revenue

There’s quite a bit of activity going on at UPS. During the first quarter, the company dropped its bid for TNT Express, bought out its Vietnamese joint venture to become the first global express company in Vietnam to be 100% wholly-owned and bought a European medical logistics company – Cemelog.

Meanwhile, the company reported quarterly earnings up 2.2% to $13.4bn. Operating profit increased just slightly as UPS had to pay a termination fee of $268m and $16m in related expenses for its failed TNT Express acquisition. Because of additional gains along with the fees associated with TNT Express, UPS’s adjusted operating profit increased 3.2% to $1.6bn.

Once again, the US Domestic division led the revenue gains with e-commerce growth given credit for the increase.  A strong January was the result of customers utilising UPS’s returns service. Overall, revenues for this group increased 3.4% to $8.3bn, but even more impressive was that operating profit increased 9.1% to $1.1m. It appears UPS has been working to tighten its network to achieve such a gain. Average daily volume per day increased 4.4%, mostly because of gains made in the company’s Ground group.

However, average revenue per piece only increased 0.4% with Ground increasing 1.5% and Next Day Air increasing only 0.3%. Despite a 3.7% increase in volume, Deferred average revenue per piece declined 3.0%.  Although e-commerce has been a boon for volumes, it appears its typical lower weight package is negatively impacting average revenue per piece. Reduced fuel surcharges appear to also be a factor in its air products.

Volumes within the International division appeared to have improved as daily export volumes increased 3.8%. Asia exports were up 8%, Europe up 3% and the US was up less than 1%. However, revenue was up only 0.3% to $3.0bn and operating profit plummeted almost 14% to $352m.

And finally, the Supply Chain and Freight division noted a marginal increase in revenue and operating profit declining almost 14%. The Freight group was the major contributor for revenue growth and a bright spot in the overall results as it recorded an 11.4% increase in revenue and 5.1% increase in tonnage. Much like the overall freight forwarding market, UPS’ freight forwarding group suffered from overcapacity in the trans-Pacific tradelanes as both tonnage and yields declined. The Distribution group, however, recorded a 10% revenue increase. Despite a nice increase in revenue, it is likely the Distribution group has yet to turn a profit due to its heavy investments in infrastructure and technology.

The company stated that its growth in first quarter was in line with its expectations. Moving forward, the company expects continued growth similar to the rate of growth in the US and the global economy.