UPS starts 2015 with double-digit operating profit growth

UPS’ first quarter earnings seem to have pleased investors as it reported a 1.4% increase in revenue to $14.0bn and an 11% gain in operating profit of $1.7bn. This in turn resulted in a 14.0% increase in EPS for the quarter.

All three segments had positive gains for the quarter but it was International that led the growth with operating profit up by 14.0% year-on-year, to $498m and a 6.7% increase in export products. Europe performed especially well with volume growth of over 9% compared to Q1 2014. According to the CFO, trans-border volume grew faster than intercontinental shipments, and deferred products continued to outpace express products.

The US Domestic segment reported that revenue increased 3.8% to $8.8bn and operating profit was up 11.0% to $1.0bn. Daily package volume improved 2.4% year-on-year despite shipment growth rate slowing as UPS opted not to pursue some lower-yielding contract renewals. In addition, the change to dim weight pricing proved beneficial to Ground yield, up 3.1% which further benefited from other revenue management actions.

Revenue from the Supply Chain and Freight segment increased 1.3% to $2.2bn with operating profit up to $151m and margin at 6.9%. Once again Distribution and Freight led this segment. Distribution revenue was up “mid-single digit” while Freight revenue was up 2.3%.

Meanwhile, the struggling freight forwarding group reported that its revenue declined due to currency changes and revenue management actions. But profitability and margin did improve from first quarter 2014.

Overall, it appears first quarter was a period of balancing pricing with volume and UPS proved successful. As expected, the change to dim weight pricing is having a positive effect on revenue along with general rate increases. In addition, the decision to not pursue some lower-yielding contract renewals combined with various “revenue management” actions is possibly benefiting profitability and margins as well.

While Wall Street rejoices, shippers will ultimately be paying a higher price to ship goods. But, perhaps it is expected as a part of doing business in this new global environment. UPS brings to the table many shipping options and logistics and according to its new marketing tagline, they are ‘United Problem Solvers’.