UPS reports respectable fourth quarter earnings

UPS has reported a respectable fourth quarter as revenue increased just shy of 3% to $14.57bn. Once again, the growth was driven by the US domestic business which increased its revenue by 3% to $8.93bn. Residential shipments, due to the growth of e-commerce, were strong and resulted in a new high for operating profit in this segment to $1.4bn. Average daily volume increased 3.2%, with US Next Day Air up 8% and Ground up 3%.

The uncertain global economy was still a factor in the international package segment as its revenue increased only 1.6%. Although customers continued to trade down to non-premium products, the growth in demand for the segment was evident as international export volumes increased 5%. International export volume from Asia grew in the mid-teens and was aided strongly by the technology sector. Within Europe, Germany, Italy and the UK showed solid export increases.

The Supply Chain and Freight Forwarding segment reported a 4% increase in Q4 revenue to $2.4bn. The Freight Forwarding and Logistics revenue increased 2.5%, while UPS Freight revenue increased 6.2%. While there was an increase in revenue, margin and profit declined for the segment. For example, transportation expense increased particularly in Asia, where the air freight market saw a short term volume surge which exceeded capacities and drove up buy rates. In addition, three additional healthcare facilities opened in the quarter and the rollout of technology enhancements within these facilities continued. It was noted on the earnings call that Ocean Freight Forwarding had its most profitable year in 2012 thanks, in part, to its LCL offering.

Although the European Commission’s negative ruling on the TNT Express acquisition was a major disappointment to the company, it remained positive in its growth opportunities in Europe. According to Dan Brutto, UPS President of International, there are opportunities to expand in certain areas of Europe and Eastern Europe, such as expanding its healthcare operations across the region. Also, the European e-commerce market appears to be another point of interest as UPS plans to announce the expansion of its European parcel network, Kiala, into the UK.

For 2013, UPS expects overall revenue to increase mid-single digits, with domestic and export daily volume growing faster than global GDP. For the Supply Chain and Freight segment, revenue is expected to increase at the mid-to-high single digits with a profit growth of 10%.