UPS Reports Drop in Net Income, But Offers Upbeat Forecast on 4Q
This story appears in the Oct. 29 print edition of Transport Topics.
Parcel carrier UPS Inc. said its third-quarter net income fell 56.3% to $469 million from a year earlier due to a one-time charge on pension funding, but its upbeat forecast for the fourth quarter led its stock to jump 3% immediately following the company’s Oct. 23 report.
Quarterly revenue dipped by 0.7% to $13.07 billion, and the Atlanta-based company said absent the charge, net income would have declined by only 4.1%, compared with the third quarter of last year. The charge was $896 million before taxes, or $559 million after.
Chairman and CEO Scott Davis said in the earnings statement that UPS employees operated well, but “in an environment of slowing global trade and changing market dynamics.”
Results varied by product line, with four bringing in more revenue compared with last year’s comparable quarter and four posting declines (see details, p. 22).
Less-than-truckload carrier UPS Freight posted improvements in revenue, operating margin and yield, whereas the company’s forwarding business posted declines due to industry overcapacity, especially out of Asia.
U.S. ground and deferred-air packages brought in more revenue, as did international air cargo. In contrast, U.S. next-day air parcels and both types of international parcels posted revenue declines.
Chief Financial Officer Kurt Kuehn said business-to-customer parcel shipping is more robust than business-to-business volumes.
Average revenue per package declined, year-over-year, in all U.S. and international lines except for the U.S. ground business, which gained 0.3%.
Kuehn said that in the domestic parcel market, “base rate improvement was more than offset by significantly lower fuel surcharges, as well as changes in both product and customer mix. The rapid growth in lightweight B2C shipments continues to push average weight per package lower.”
Despite the mixed third-quarter results, Davis and Kuehn forecast a very busy fourth quarter, which sparked a stock gain.
“Shares of UPS rallied 3% — materially outperforming the S&P 500 [down 1.4%] — as investors cheered the better-than-expected fourth-quarter guidance of $1.34 to $1.44 a share,” analyst Justin Yagerman wrote to clients of Deutsche Bank. UPS closed at $73.73 a share on Oct. 23, the day of the earnings report, up from $71.56 the previous day.
Davis said there was some good U.S. economic news: “Housing is starting to improve, we have lower fuel costs, lower interest rates and the stock market has been strong. That usually correlates to good consumer behavior.”
Yet despite the company’s optimism about year-end parcel shipping, Davis said he was worried about federal budget issues, and he veered into politics early in his remarks: “The U.S. is on the edge of a fiscal cliff, and there is concern whether politicians can reach an agreement that solves these issues. The lack of political will to fix our debt problem adds to the uncertainty in our economy — just what we don’t need.”
FedEx Corp., UPS’ main competitor, offered a similar report in September for its fiscal quarter ended Aug. 31. FedEx Chairman and CEO Frederick Smith said then that international trade was slowing, but U.S. ground parcel and LTL operations did well (9-24, p. 5).
Preparing for its $6.7 billion acquisition of Europe’s TNT Express, UPS had $9.01 billion in cash and marketable securities as of Sept. 30, up from $4.3 billion at the end of 2011. Shareholders’ equity, or corporate net worth, advanced to $7.61 billion from $7.11 billion over the same time.
