UPS affirms 2016 outlook after ‘solid’ Q2 earnings

0
316

UPS-hybrid-electricAtlanta-headquartered United Parcel Service (UPS) is affirming its full-year guidance for the year following a strong second-quarter performance despite the weak economy and the smaller revenue growth owing to lower fuel surcharges and currency exchange rate changes.

The logistics giant said its positive momentum carried through to the second quarter with diluted earnings per share of US$1.43, a 6% increase over the same period last year. International operating profit increased 11% to $613 million, representing the sixth consecutive quarter of double-digit growth.

Total revenue was $14.6 billion, up 3.8% over the same quarter last year. Revenue growth was reduced by lower fuel surcharges and currency exchange rate changes. On a currency-neutral basis, revenue increased 4.0%.

“We are investing to expand our global network, implementing new technologies and capturing new revenue in high-growth markets,” said David Abney, group chairman and CEO. “These strategic investments in our diversified business again this quarter generated strong value for our customers and shareowners.”

On how its business units fared, domestic operations registered a spike in operating profit to $1.2 billion. Productivity improvements bolstered by technology, combined with lower fuel costs, resulted in a 0.2% reduction in cost per unit compared to the same quarter in 2015.

Revenue increased 2.4% over the second quarter of 2015 to $9.0 billion. Average daily package volume increased 2.5%. Strong business-to-consumer growth trends continued this quarter, outpacing business delivery growth more than five to one, said the company. Revenue per package was flat compared to the same period last year. Growth in base rates offset changes in product and customer mix.

For international operations, operating profit jumped more than 11% to $613 million, setting a record second-quarter level. “Volume growth in all products, disciplined pricing and network efficiency gains contributed to the increase in profitability,” UPS said.

Revenue was up 1.1% compared to the prior year. Daily export packages increased 3.9%, as growth out of Europe and Asia offset lower U.S. levels. The Europe-to-U.S. trade lane increased at a double-digit pace, as customers used the UPS network to benefit from the strength of the U.S. dollar. Export shipments increased across all product categories and premium products outpaced non-premium.

Revenue per package decreased 1.9%, and on a currency-neutral basis revenue per package was down 1.4%. Base rate improvements were offset by changes in trade lane and customer mix.

Supply chain and freight revenue, meanwhile, increased by more than 13% to $2.5 billion. This was mainly due to the acquisition of Coyote Logistics in the third quarter of last year. Weak market conditions in the air freight forwarding and LTL markets weighed on top-line growth.

The forwarding business expanded operating margins through a focus on revenue quality and operating cost reductions. The asset-light, truckload brokerage business is performing well, despite a continuing soft market. The distribution unit experienced strong revenue growth in the healthcare, aerospace, and automotive sectors. Operating profit increased and operating margin expanded over the prior-year period.

UPS freight LTL revenue per hundredweight increased 2.9% over the same period last year. Total tonnage remains challenged by current market conditions. The business unit remains focused on disciplined revenue management and profitable trade lanes.

Looking forward, chief financial officer Richard Peretz said: “UPS produced solid second quarter results, despite the continued uncertainty in the macro economy. The technology and productivity investments in our integrated network are delivering strong results. We reaffirm our guidance for 2016 full-year diluted earnings per share of $5.70 to $5.90.”