UPS affected by crisis but areas have seen good profits

UPS has opened two new air connections from Gdańsk airport and Copernicus airport in Wrocław.

UPS’ first-quarter numbers seem to underline the trend that whilst the crisis has had substantial economic effects, for the largest logistics service providers it has been far from disastrous.

The Atlanta-based company announced that year-on-year its quarterly revenue had increased from $17.16bn in Q1 2019 to $18bn in this quarter, driven, in the words of CEO and Chairman Dave Abney, “by growth in business-to-consumer shipments and gains in healthcare”. Profits, measured by net income, fell by 13% to $965m although on UPS’ favoured ‘adjusted’ criterion the fall was slightly harder.

At the core ‘US Domestic’ business, revenue increased by 9.3% on volume up 8.5% yet operating profits nearly halved, falling by $302m to $364m. The segment experienced what UPS described as an “unprecedented shift in customer and product mix in the quarter” yet the higher volumes and apparently higher prices did not compensate “the significant headwinds from the impact the coronavirus pandemic had on UPS customers”.

The ‘International’ operations of the Express segment weathered events quite well, with just a 1.8% decline in volume, with modest falls in revenue and an increase in operating profit of $23m to $551m. This performance appears to have been underpinned by the recovery in China as well as demand in the pharma sector.

Even in the ‘Supply Chain and Freight’ business, things were really not too bad. Revenue fell just 1% to $3.196bn, with UPS ascribing this robustness to “disciplined focus on growth opportunities and the segment’s broad portfolio of solutions”. Operating profit fell by almost a quarter to $157m, despite an increase in contract logistics profits “led by double-digit growth from Marken”, whilst air freight forwarding “rebounded in March generating revenue and profit growth in the quarter”. In the road freight activities “UPS Freight and Coyote experienced depressed volume levels primarily from mandated stay-at-home restrictions and businesses closures”.

Unsurprisingly UPS is cautious about predictions of future performance, however, Q1 numbers suggest that this business is robust. Rather than a question of survival, the issue may be how well can UPS exploit demand in airfreight, the pharmaceutical sector and e-retail, markets where it is strongly positioned.

Source: Transport Intelligence, April 30, 2020

Author: Thomas Cullen