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UPS Inc.’s strategy to focus on more profitable segments of the shipping business paid off in the third quarter as its revenue per item shipped rose 13% and earnings climbed.
The Atlanta-based company’s net income rose 19% to $2.3 billion from $1.96 billion in the same period a year earlier. Diluted earnings per share climbed to $2.65 from $2.24.
Revenue increased 9.2% to $23.2 billion from $21.2 billion even though the number of shipped items dipped 2%.
Some of the declines in the amount of items shipped were due to consumers returning to stores as COVID-19 pandemic restrictions eased.
CEO Carol Tomé described the UPS strategy as a “better, not bigger framework” that focuses on productivity gains and improved customer service.
“We are laser-focused on revenue quality. We used to think that every package was the same. We don’t think that anymore,” Tomé said in an Oct. 26 conference call with industry analysts and investors.
One example of the productivity gain is a 2.5% increase in the number of packages moved per hour, she said. Another is the deployment of cubic utilization techniques to load trailers as full as possible. That allowed UPS to slash daily trailer loads by more than 10% year-over-year.
And in a move to reduce turnover and improve productivity, UPS is converting around 1,000 part-time supervisor positions into nearly 400 full-time jobs that will not add net cost to the company, Tomé said.
“The progress we are making is clearly visible in our results,” she said.
Chief Financial Officer Brian Newman said that the third-quarter financial performance was better than UPS anticipated, driven by solid revenue growth and firm expense control.
The company is looking to solidify its gains next year, even in the face of inflationary pressures such as higher labor and fuel expenses. Tomé said it will institute a 5.9% general rate increase for 2022.
Broken down by division, revenue in the core U.S. domestic unit rose 7.4% to $14.2 billion compared with $13.2 billion a year ago. Revenue increased faster in the company’s international segment, jumping 15.5% to $4.7 billion from $4.1 billion in the same period a year earlier.
UPS’ Supply Chain Solutions segment revenue rose by 8.4% to $4.3 billion from $3.9 billion a year ago.
Operating profits also gained, especially in domestic operations at the Supply Chain Solutions business segment.
U.S. domestic package operating profits rose 28.1% to $1.4 billion in the quarter. Operating profit for its international package business rose 8.8% to $1.05 billion. The company’s Supply Chain Solutions segment logged a 46.5% jump in operating profit to $438 million. Total operating profit rose 22.6% to $2.9 billion.
As it enters the peak holiday shopping season, UPS plans to control the volume that enters its network to “minimize chaos costs” and maintain service levels, Tomé said.
UPS continues to look for ways to leverage its extensive shipping network.
Expanded weekend delivery service is one example, Tomé said.
Saturday delivery service now covers about 90% of the U.S. population for residential and commercial pickup and delivery. One benefit is that it provides more capacity for Sunday delivery, she said.
“We’ve unlocked additional network capacity that benefits all customers without deploying additional capital,” Tomé said.
She said that it is also beginning to see an early start to the holiday shopping season because consumers are concerned about supply chain disruptions and gift availability.
“Consumers are quite panicked about this because supply chain jams are all over the news,” Tomé said.
Retailers are already pulling promotions forward.
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“There’s also a belief that there will be more gift cards sold this year than in prior years, which should suggest that packages will continue to be delivered post the holiday, that kind of elongates the holiday shipping,” she said.
Tomé said the company is making a big push into automating operations, such as attaching RFID tags to packages to reduce manual scanning. The initiative eliminated 20 million manual scans a day.
“There is a ton of opportunity to drive automation in ways we have not before,” Tomé said.
Bolstered by the favorable third-quarter results, UPS is raising its guidance for all of 2021, Newman said.
It now expects full-year 2021 revenue growth of around 13.8% over the prior year. The company’s consolidated operating margin will hit 13%. The company anticipates the full year 2021 domestic growth of about 12.7%, with revenue growing faster than package volume. It is looking for an operating margin for its U.S. business at about 10.5%.
UPS expects to spend $4.2 billion on capital expenditures this year, increasing $200 million from its previous guidance.
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