UPS reports strong operating profit in challenging market

In a conference call with investors, UPS CEO David Abney announced another strong quarter for the global logistics company, and came out swinging in favor of free trade.

Among the highlights of the report were strong earnings for the second quarter.  Total revenue was up 3.8 percent over the same quarter last year, to $14.6 billion. International operating profits were up 11 percent, year-over-year, to $613 million, marking the sixth consecutive quarter of double-digit growth for that sector. Also, net income rose by 3.2 percent, y-o-y, to $1.27 billion for the three-month period ended June 30.

Total operating profit rose by 4.0 percent, y-o-y, for Q2, and the U.S. Domestic Package division’s operating profit increased by 2.7 percent over the same period, while Supply Chain and Freight dropped by 7.2 percent during the quarter.

Despite its net drop in operating profit, the Supply Chain and Freight department posted impressive revenue gains, rising by more than 13 percent, y-o-y, to $2.5 billion. These advances were due, in large part, to the recent acquisition of Coyote Logistics in the third quarter of 2015.  Like its competitors, UPS’ earnings took a beating in the Air Freight Forwarding and LTL markets.

Diluted earnings per share reached $1.43, a 6 percent increase, y-o-y, while total revenue reached $14.6 billion, a 3.8 percent rise, y-o-y.  Revenue growth, however, was hampered by lower fuel surcharges and currency exchange rates.  “On a currency-neutral basis, revenue increased 4.0 percent” the company announced. Lower fuel surcharge rates cut revenue growth by about 120 basis points.

UPS CFO Richard Peretz noted that next-day air products were up by about 6 percent.  “More online retailers are offering faster delivery products to stay competitive,” he explained. In the international segment, Europe led the way, with significant gains in cross-border products. “The Europe-to-U.S. lane grew at double digit pace this quarter,” Peretz noted.

During the call, Abney also noted that, following the ratification of trade deals, his company has seen U.S. exports increase by up to 20 percent.  “UPS is a steadfast proponent of trade,” Abney stressed. “It supports agreements that minimize friction in the global supply chain.” He underscored that trade deals such as the politically toxic Trans Pacific Partnership (TPP) were vital to the health of the U.S. economy.

Abney explained that the company’s performance was based on continued investment in four areas, adding network capacity, pursuing technological efficiency, deploying “industry-specific solutions and expanding in high growth markets. Abney pointed to expansion of the company’s locker program as examples of ways to reach “urban online shoppers.”

When the floor was opened to questions from investors, one caller drew Abney’s attention to Amazon.com’s growing footprint in logistics and deliveries. UPS’s CEO was quick to deflect the question, arguing that, with its massive, and growing, customer base, his company could always offer lower prices and better services.