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Coordination and alignment will continue to keep UPS stepping up growth

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UPS today announced that first-quarter 2018 earnings per share rose 17% to $1.55, led by double-digit operating profit growth in both International and Supply Chain and Freight segments, which meets expectations.

“Top-line growth in our business was strong across all business segments, reflecting the power of UPS’s global solutions and continued favorable economic conditions,” says UPS Chairman and CEO David Abney on the webinar earnings call. “When combined with our transformation initiatives, these favorable trends position UPS for strong returns going forward.”

The U.S. sector, however, somewhat underperformed mainly due to bad weather and some expected headwinds, such as the continued deployment of Saturday delivery and pension expenses. The U.S. made 10.2 billion, a growth of 7.2%. Overall, for the company, this marks the 13th consecutive quarter of double-digit growth, and all regions contributed to the gains.

Also, UPS says it seeks broad transformation. The company intends to create greater efficiency through their back office and top management personnel and throughout the company. In particular, they hired Scott Price as Chief Strategy and Transformation Officer. “The secret to our success is through coordination throughout our systems,” says Abney.

UPS’ newly-appointed COO Jim Barber added: “Last year we ended with $3.2 billion in profit. We seek to build sustainable models, and make straightforward, flexible and agile plans. This year marks a significant step-up in our plans. Greater operational efficiency, which bend the cost-curve further. The U.S. will see the largest gains. But make no mistake, it’s about learning what our customers demand.”

Basically, UPS recognizes the change in businesses in their industry is happening at a pace that exceeds anything they’ve seen before. They recognize the urgency. In this light, the company is focused on increasing shareholder value as well—which is in line with what they have aimed for over the past 50 years, according to Abney. The initiatives aren’t all going to happen in a single year, nor in a single movement. It will be a multi-layered, step-by-step approach.

UPS’s consolidated Results for 1Q 2018 showed a 10% increase year-over-year in revenue. Net income showed a 15% positive change, with diluted earnings per share of 17%.

For the total company in 1Q 2018:

· Total revenue increased 10% to $17.1 billion, on strong demand for UPS solutions.

· Average yield increased by 4.3%, led by International and U.S. Deferred Air products.

· UPS rewarded shareowners by increasing dividends per share by nearly 10% over the prior year, and distributing $840 million during the quarter.

· To support investment strategies the company made capital expenditures of $1.5 billion.

· The lower effective tax rate reflects a more competitive U.S. tax structure, some discrete tax items and includes the impact of share-based compensation.

· First quarter results include the adoption of new accounting standards for pension and revenue recognition. Prior-period results were also recast to reflect these changes.

The U.S. Domestic segment experienced strong demand as customers increasingly chose UPS solutions. Both unexpected and planned items weighed on operating profit for the segment during the first quarter.

For the U.S. Domestic segment in 1Q 2018:

· Revenue increased to $10.2 billion, up 7.2% over 1Q 2017. Revenue improved across all products, signaling the strong market demand for UPS solutions.

· Revenue per piece increased 2.6% as higher base-rate pricing and fuel surcharges offset headwinds from customer and product mix.

· Operating profit includes headwinds from severe winter weather of $85 million, Saturday deployment, network projects and higher pension expenses.

For the International segment in 1Q 2018:

“The execution of our diversified global strategies and our investments produced double-digit growth in revenue and profit. Each of our International regions is contributing to our financial gains, and we expect this strong momentum to continue,” Abney says.

· International revenue increased 15% despite two fewer operating days in many countries. Currency-neutral revenue increased 8.7%.

· Export, Domestic and Cargo product groups all achieved double-digit revenue growth.

· Export shipments per day grew an average 12% as premium products continue to outpace non-premium. · Export volume growth in Europe and the U.S. continued to be strong for the quarter.

· Operating profit was $594 million, up 15% on higher Export shipments and expanded product yields. Currency-neutral operating profit increased 10%.

“While Europe is strong for us, what we want to emphasize is that it’s balanced. We chose in Europe in 2013 to invest in it in the same way we invest in the U.S. We invested 2 billion in both air and land, and we’re about 70% through that,” says Richard Peretz, UPS’s CFO.

For the Supply Chain and Freight segment in 1Q 2018:

The Supply Chain and Freight segment produced another quarter of strong financial results. Revenue and operating profit grew by double digits due to successful revenue-quality initiatives, opportunistic growth strategies and structural cost reductions.

· Revenue increased to $3.4 billion, up 16% over 1Q 2017. The business units focused on high quality, middle-market customers.

· The Forwarding business led all units with 27% revenue growth, as revenue management initiatives and stable market conditions drove top-line gains.

· UPS Freight revenue increased 9.9% on solid LTL (less-than-truckload) pricing and tonnage growth.

· Operating profit was $170 million, up 14% from the same quarter in 2017.

The company provides guidance on an adjusted (non-GAAP) basis because it is not possible to predict or provide a reconciliation reflecting the impact of future pension mark-tomarket adjustments or other unanticipated events, which would be included in reported (GAAP) results and could be material.

“Our focused business strategies are producing strong results in both the International and Supply Chain segments,” says Peretz. “The benefits from our investments, new multi-year transformation efficiencies and stronger pricing position us well for shareowner value creation.”

· UPS expects 2018 adjusted diluted earnings per share to be in a range of $7.03 to $7.37.

· The company projects free cash flow of $4.5 billion to $5.0 billion in 2018.

· The effective tax rate should be in a range of 23% to 24% for the remainder of the year.

· Capital expenditures in 2018 are planned between $6.5 billion to $7.0 billion.

The company also observes that the free cash flow from tax incentives have contributed to the growth. They aren’t able to vet out their strategies to anticipate if they’ll be able to grow in exactly the same way as they have so far this year. In general, the company is actively upgrading their manufacturing and air freight networks, and remain bullish on their integrated strategies and their strong place in the market.

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Chad Prevost

Chad is radio host and broadcast media specialist for FreightWaves.