July 24, 2019 12:00 PM, EDT

UPS Announces Strong 2Q Earnings

UPS logo and truck Tim Boyle/Bloomberg

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United Parcel Service Inc. reported second-quarter earnings benefiting from rising demand for its Next Day Air and Ground delivery services.

The Atlanta-based package giant’s net income was $1.67 billion, or $1.94 per diluted share, compared with $1.49 billion, or $1.71, in the same year-ago period.

Revenue was $18.05 billion compared with $17.46 billion.

UPS said next-day air shipping volume increased by 30%.

“Demand for faster delivery is a structural change in our industry,” CEO David Abney said July 24.

The rising demand for next-day service also leveraged asset-light and proven cost management strategies in the international, supply chain and freight segments, the company said.

Over the past several years UPS built new, highly automated distribution facilities and is modernizing older ones.

“Our transformation initiatives are generating greater efficiencies across the network and, when combined with our growth strategies, UPS achieved profit growth in all segments,” Abney said. “We also announced a very extensive rollout of new products and services such as UPS My Choice for Business, expanded UPS Access Points and UPS Worldwide Economy, among others, for small- and medium-sized businesses.”

On an adjusted basis, net income was $1.70 billion, or $1.96, compared with year-ago adjusted net income of $1.69 million, or $1.94.

Earnings were adjusted to exclude transformation strategy costs and a pre-tax charge of $21 million, or 2 cents per share after tax. For second-quarter 2018, adjusted results excluded a pre-tax charge of $263 million, or 23 cents after tax, primarily from the UPS Voluntary Retirement Program.

Earnings were reported hours after UPS announced that beginning Jan. 1, it will expand its delivery business to seven days, adding Sunday nationwide ground service. It expanded to Saturday service last year.

“We will leverage the combination of the UPS Network, UPS Access Point locations and SurePost in collaboration with the United States Postal Service to efficiently provide these exciting new capabilities,” Chief Marketing Officer Kevin Warren said. “Building on an expanded relationship with the Postal Service to help deliver seven-day service to our customers makes good business sense.”

Weekend deliveries are increasing as e-commerce shopping takes a bigger slice of the retail market. The U.S. Department of Commerce said e-commerce sales were $137.7 billion in the first quarter, the latest figures.

Transportation analyst Ben Hartford with the Baird Co. in Milwaukee told Transport Topics UPS’ actions were needed as the competition for next-day delivery intensifies.

“The volume growth has been there, but the volume growth hasn’t resulted in profit growth. The transformation initiative that they have really addresses the cost inefficiencies that come about from e-commerce’s growth,” Hartford said.

UPS’ main rival, FedEx Corp., announced its plans in May to expand to seven-day service in 2020.

UPS and FedEx are under pressure to increase the speed of deliveries as becomes more of a direct competitor by adding an overnight cargo airline and a ground-delivery network.

UPS also announced it is expanding its popular UPS Access Point network, adding up to 12,000 additional locations in the coming months. It is partnering with CVS Pharmacy, Michaels and Advance Auto Parts stores, with initial store pilot efforts already underway.

“These partnerships and platforms provide a win-win for our customers and UPS. Our customers gain convenience and control, and UPS attains further geographic reach and greater densities,” said Kate Gutmann, UPS chief of sales and solutions.

UPS says it also is getting into the drone business full time. It has applied with the Federal Aviation Administration to operate an extensive fleet of drones nationwide.

Currently, UPS and its partner, Matternet, operate drone health care deliveries of medical samples at WakeMed hospitals in Raleigh, N.C. The company says this new certification will pave the way for service expansions to several other U.S. health care networks.

UPS ranks No. 1 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.