UPS struggles in moderating market

By Thomas Cullen / www.ti-insight.com / April 30th, 2019

Even allowing for the slightly fewer days over the period, the first quarter numbers from UPS were not quite as exciting as might be hoped for. Revenue was more or less flat at US$17.16bn, an increase year-on-year of 0.3%, although the core US domestic package business rose 2.5%. However operating profits were not good, falling 8.3% for the whole company whilst US Domestic package fell 11.9% to US$666m. For the whole group, the quarter saw net income before taxes fall 13.3% year-on-year.

At US Domestic package, the business was driven by both Air and Ground segments, with the former growing its volumes at 8% “driven by high demand for faster delivery options”. However, the implication is that e-retailing demand was not as high as previously, whilst a “drag of about $80 million due to severe winter weather during all months of the quarter” depressed profits. However International also took a hit to profits of 11.1% at $528m, although UPS says that the underlying trend was upwards. Volumes here grew at a much slower rate than US Domestic, at 1.9% year-on-year.

Supply Chain and Freight had a different sort of quarter, with a “disciplined approach” delivering a 17.6% increase in operational profits despite a 3.9% fall in revenue. As usual, Coyote made money but Air and Ocean Forwarding did so as well, with “significant contributions to operating profit growth as a result of greater alignment with small and medium-sized customers”.

UPS continues to experience reasonable, if not perfect, market conditions and deliver variable results. The past quarter may have been disrupted by poor weather conditions and it also felt the effects of a moderate slowing in the American consumer economy. Yet neither are sufficient explanation for the continued weakness of profitability, after all volumes in the US still grew by 8%. Some parts of the business continue to do well, such as the road freight and freight forwarding, however the core US and International Express package business must be of concern as the US and the World generally sees a reduction in growth.

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