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Air CargoAsia-PacificCanadaCompany earningsEuropeLast MileLess than TruckloadNewsParcelTrade

U.S. next-day air star of the show as UPS posts solid second quarter results

Next-day air volumes jump 30 percent; international hit by macro weakness; supply chain execution offsets flat revenue

UPS Inc. (NYSE:UPS) reported Wednesday adjusted second quarter earnings per share of $1.96, three cents above analysts’ median estimates, as solid results from its domestic U.S. and supply chain and freight segments offset a flat performance from its international business.

Overall, revenue for the nation’s largest transportation company rose 3.4 percent to $18 billion. Adjusted operating profit grew 6.3 percent, while operating margins expanded by 170 basis points. The U.S. domestic segment, spurred by a 30 percent surge in next-day air volumes fueled by e-commerce demand, posted an 8 percent adjusted year-over-year gain in operating profits and a 26 percent gain on an unadjusted basis. Domestic revenue increased 7.7 percent to $11.1 billion.

International volumes declined due to global macroeconomic pressure and difficult year-over-year comparisons, UPS said. Export volumes in the second quarter of last year rose 9.5 percent from 2017 levels, as global commerce experienced strength prior to the start of the U.S.-China trade dispute.

The company’s supply chain and freight unit, which combines its less-than-truckload (LTL), logistics, brokerage and international air freight, reported adjusted operating profit of $273 million, compared to $247 million in the year-earlier quarter. Operating margin expanded by 8 percent year-over-year on an adjusted and non-adjusted basis as the unit kept costs down and focused on “high-quality” revenue in the face of flat revenues due to trade-related pressures, UPS said.

The company projected that 2019 earnings per share would range between $7.45 and $7.75 on an adjusted and diluted basis. Adjusted free cash flow will range between $3.5 and $4 billion with possible upside potential as the company moves through its ambitious “transformation” strategy that centers on a dramatic re-engineering of its physical distribution network to meet changing distribution and delivery needs of its business and residential customers.

Late on July 23, UPS announced a flurry of changes to its portfolio that includes seven day a week ground delivery effective January 1, 2020, the launch of a commercial drone unit and an application with the federal government to operate commercial service with unlimited drone capacity, extended pick-up hours for shippers wanting next-day ground delivery, and an international economy delivery service for small to midsize merchants wanting to expand their markets for low-priced goods ordered online.

The second quarter results exclude a $21 million pre-tax charge for implementing the transformation strategy. Second quarter 2018 results excluded a $263 million after-tax charge to fund the company’s voluntary retirement program, UPS said.

UPS shares were trading higher by 3.2 percent in the Wednesday pre-market.

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Mark Solomon

Formerly the Executive Editor at DC Velocity, Mark Solomon joined FreightWaves as Managing Editor of Freight Markets. Solomon began his journalistic career in 1982 at Traffic World magazine, ran his own public relations firm (Media Based Solutions) from 1994 to 2008, and has been at DC Velocity since then. Over the course of his career, Solomon has covered nearly the whole gamut of the transportation and logistics industry, including trucking, railroads, maritime, 3PLs, and regulatory issues. Solomon witnessed and narrated the rise of Amazon and XPO Logistics and the shift of the U.S. Postal Service from a mail-focused service to parcel, as well as the exponential, e-commerce-driven growth of warehouse square footage and omnichannel fulfillment.

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