UPS Revenues Rise, but Profits Flat in Third Quarter

Supply Chain, Freight, International Business Segments Drive Growth
UPS logo
Andrew Harrer/Bloomberg News

UPS Inc. reported third-quarter profits that were nearly flat compared with a year ago after easing 0.5%. And the parcel giant also announced a 4.9% rate increase to match other less-than-truckload carriers.

UPS earned $1.26 billion during the period ended Sept. 30, compared with $1.27 billion the year before. On a per-share basis, income rose a penny to $1.45 because there were as much as 12 million fewer shares outstanding than a year ago due to company buybacks.

Revenue grew 7% to $16 billion, surpassing a $15.6 billion forecast.

“Our e-commerce and cross-border solutions helped UPS deliver strong revenue growth of 7% on a 4.6% increase in daily shipments. In the U.S., increasing demand for UPS Next Day Air and Ground products drove revenue growth,” said David Abney, UPS chairman and CEO.

“Focus on fundamentals, combined with the benefits of recent investments produced good results, especially when you consider the unexpected headwinds we faced,” he said.

Atlanta-based UPS ranks No. 1 on the Transport Topics list of the top 100 for-hire carriers in North America.

UPS announced that it would raise rates 4.9% on UPS Ground, UPS Air, UPS Air Freight and international services, effective Dec. 24, matching similar announcements from leading less-than-truckload carriers such as Old Dominion Freight Lines.

UPS also plans to hire 95,000 seasonal employees for the holidays and highlighted that over the last three years about 35% of those workers get offered permanent jobs.

In the UPS Domestic Package segment, revenue grew 3.9% to $9.6 billion, but operating income slipped 5.6% to $1.2 billion. The division, which includes UPS Next Day Air, UPS Ground and UPS Deferred, saw a 3.4% increase in volume to 15.9 million packages and a 2% price increase to $9.64. The company blamed lower profits on a $50 million financial hit from natural disasters and $40 million for construction of new buildings and “deployment of Saturday operations.”

UPS Chief Financial Officer Richard Peretz attributed the $50 million to the recent hurricanes in Texas and Florida and the wildfires in California.

The UPS International Package division, which has fueled growth in recent quarters, continued to record a strong performance this time around, too. Revenue climbed 11% to $3.4 billion and operating income expanded 8.9% to $627 million. Exports generated the best results in the international division with a 12% hike in revenue to $2.6 billion on a 19% increase in volume to 1.4 million packages. International Domestic daily shipments increased 5.7%, led by double-digit growth across several European countries.

UPS also highlighted a joint venture with SF Express, a small-package carrier in China. Regulators in China recently approved the partnership, opening up the large population to the UPS International network.

“We were excited that we did get approval in a timely fashion. It’s so important because there are so many opportunities between China and the United States,” Abney said.

UPS also received two Boeing 747-8 aircrafts in October with a third scheduled to be delivered in late November, planes that will be used for Trans-Pacific shipments.

The UPS Supply Chain Solutions and UPS Freight segment also produced significant growth during the quarter, outpacing all other divisions on a percentage basis. Revenue grew 13% to $3 billion and operating income climbed 9.7% to $22 million.

The segment encompasses the third-party logistics operations, including freight broker Coyote Logistics, and the less-than-truckload business.

UPS Supply Chain Solutions grew revenue 15% year-over-year to $2 billion and UPS Freight revenue improved 11% to $778 million.

Within UPS Freight, less-than-truckload revenue increased 9.3% to $673 million and total shipments rose 1.5% to 2.6 million. Weight per LTL shipment also grew 3.9% to 1,062 pounds and revenue per 100 pounds of freight rose 3.6% to $24.47.

UPS slightly raised full 2017 earnings per growth forecasts a nickel on the low end to $5.85 to $6.10.

Abney made a brief mention of the ongoing talks with the International Brotherhood of Teamsters on a new contract covering package and freight employees. The current five-year collective bargaining agreement expires July 31, 2018. Formal negotiations will officially begin in January.

“We’ve worked with the Teamsters for more than 80 years with the objective of providing industry-leading service to our customers, so we can create new jobs and reward employees for contributing to the company’s success. We expect the negotiations to move forward in a constructive matter,” Abney said.