UPS roars on e-retail in Q4 but sale of freight drags


UPS has, in the past, struggled to exploit the opportunity of e-retail but in the fourth quarter of 2020, it seems to have been successful, with the caveat that Amazon remains an important part of its business.

The Q4 numbers released on Tuesday (February 2) saw revenue increase 21% year-on-year to $24.9bn but operating profit rose much less at 1.6% to $2.2bn due to “transformation costs”, or investment in new capacity. Stripping these costs out, underlying operating profits were up 26%.

The big picture financial numbers were skewed by the effect of the sale of the UPS Freight division, leading to a $3.3bn loss for the quarter.

The whole company was driven forward by the two express businesses. The core U.S. Domestic Express saw revenue climb 17.4% and operating profit up 16% at $1.2bn. UPS said that this revenue and profit increase was driven by “small and medium-sized businesses”

The International Express division saw revenue rise 26.8% and operating profit leap 44% to $1.148bn. UPS said that “average daily volume grew 21.9%, with export growth from all regions” leading to a hardening of profit margins, driven by growing business in Asia and Europe.

Obviously, these numbers were due to the explosion in e-retail seen over the past year and which continued to accelerate over the quarter; a quarter that, of course, included Christmas. Speaking in a conference call after the announcement of the results, CEO Carol Tomé said that UPS was doing more business with Amazon, with sales from the e-retail giant being up by 31%, to $11.3bn. On an annualised basis this represents 13.3% “of total UPS sales”, up from over 11% last year.

Matters at the Supply Chain and Freight Segment were not quite so happy. Although revenue increased by 29% “with strong market demand in nearly all businesses including freight forwarding out of Asia and UPS Healthcare”, operating profit fell into a loss of $228m. This loss might be attributed to the UPS Freight business.

Clearly, UPS continues to benefit from its hard-won ability to profit from the e-retail bonanza. The only slightly worrying thing is that it continues to have one rather overmighty customer.

Source: Transport Intelligence, February 4, 2021

Author: Thomas Cullen