UPS 2Q net revenue up 7% on e-commerce earnings development, pricing actions

United Parcel Service (UPS) second-quarter 2018 net profit increased 7.3% year-over-year (YOY) to $1.5 billion. This was achieved on a 9.6% YOY revenue growth across its three major business segments, with international package and supply chain/freight revenue each showing double-digit YOY gains.

US domestic package revenue grew 6.3% in the second quarter to $10.4 billion, with Next Day Air revenue up 4.5% to $1.8 billion, Deferred Air revenue up 5.9% to $1.1 billion, and ground revenue up 6.8% to $7.4 billion.  UPS said domestic revenue growth was driven by ongoing e-commerce demand as well as 3.6% increased revenue per piece from higher base-rates and fuel surcharges.

“Simply put, we are taking pricing actions to better align our cost to serve with the value we create for our customers,” UPS SVP and CFO Richard Peretz said in a conference call with analysts July 25. “As a result, yields expanded in each of our major products.” Oversized and large residential packages, in particular, were targeted for price increases. In July, the company added excessive package length (over 96 in.) as subject to increased rates.

International package revenue was up 13.6% YOY for the quarter to $3.6 billion; UPS’s supply chain and freight segment also made solid revenue gains, rising 16.1% YOY to $3.5 billion, as the company focused on middle-market customers and scored its reportedly best-ever quarterly improvement in the business segment, driven by higher tonnage and improved pricing.

Overall company revenue was $17.5 billion for the quarter, as total operating expenses rose 12.9% to $15.7 billion. UPS recorded a pretax charge of $263 million during the quarter related to a voluntary retirement plan the company introduced in April, UPS VP and IR officer Scott Childress described as “successful and well received.” Higher pension expenses were also a significant cost factor over the quarter, the company said. 

UPS’s owned and leased-in fleet totaled 245 aircraft at the end of the quarter, as an additional Boeing 747-8F joined the fleet in June, making for six 8Fs in the UPS network at present. As of June 30, UPS has an additional 22 747-8Fs and nine new-build 767-300Fs on order. By the end of 2018, UPS will have nine 8Fs in service as well as three additional 767s. By 2022, UPS is looking to take in six 8Fs each year; the number of new 767s per year will be aligned with demand but are scheduled for delivery by 2020.

UPS is flying its new widebodies on Asia-Pacific routes, as well as on a direct flight between Dubai and UPS’s Louisville, Kentucky hub. UPS chairman and CEO David Abney noted the company will open its second largest domestic ground hub in Atlanta “over the next couple weeks … at full capacity this year, it will sort over 100,000 pieces per hour, more than double the hub sorting capacity we added all of last year.”

“The global economy remains healthy, despite some emerging discord around trade … global and US real GDP forecast annual growth to remain at or above 3%,” Abney said. “The US economy is benefiting from tax reform and reduced regulations, helping to drive positive consumer confidence and higher retails sales … in Europe, positive fundamentals in the Central Bank stimulus remain in place, helping to offset concerns about Brexit and other issues. And in Asia … growth continues to be strong with China leading the way, despite trade-related concerns.”

“While we expect continued growth in global trade, we’re closely monitoring the changing trade landscape,” Abney said. “The flexibility of our network and scope of our business model [will help UPS customers] adapt to changing dynamics. No matter the outcome, we are well-prepared in the event rising tensions impact our cross-border business.”

Mark Nensel [email protected]

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