UPS has substantially increased hub capacity in the USA and Asia to target continuedinternational growth after a strong rise in Q1, 2010, profits and expectations of high double-digit
profits growth this year.The integrator announced today that it has completed the $1 billion expansion of its Worldporthub at Louisville, USA, ahead of schedule and started operations at its $180 million Asia Pacifichub at Shenzhen, in the Pearl River Delta, southern China.
The Worldport hub has been expanded to process 416,000 packages per hour, up from 350,000 perhour, and the number of aircraft parking bays has been increased by 26 to 70. “Expanding Worldportalready has proven a wise investment in customer service,” said Bob Lekites, president of UPSAirlines. “And we’re proud we were able to accomplish this huge project ahead of schedule, underbudget and with outstanding safety, labour and minority contracting programmes.”
The 89,000 sqm Asia Pacific hub at Shenzhen has initial capacity to handle up to 18,000 piecesper hour, compared to 7,500 pieces per hour at the former hub at Clark in the Philippines, and canbe easily expanded to a capacity of 36,000 pieces per hour. The facility, which is the basefor the UPS intra-Asia flight network, has slashed at least a day off shipment time-in-transit forcustomers in the region, while offering a new level of service to the manufacturing region locatedjust north of Shenzhen.
“We want to be where our customers need us most,” said Dan Brutto, president of UPSInternational. “Given the growth in shipping along the southern rim of China, it now makesmore sense to sort and dispatch this volume from a hub closer to our customers.”
Meanwhile, UPS released its detailed results for the three months ended March 31, 2010, showinga strong profits increase driven by international growth, especially in Asian exports. Adjustedoperating profits, excluding various one-off charges, rose 31% to $1,178 million with net profitsup 37% to $1,089 million. Revenue increased 7.2% to $11,728 million, and the operating marginimproved to 10% from 8.2%.
Growth in the international package and supply chain businesses, yield improvement and increasedoperating leverage resulted in margin expansion in all business segments, the company stated.Consolidated volume rose 2.7% to 940 million packages. Average revenue per piece increased 2.9%,reflecting general rate increases and higher fuel surcharges.
“UPS’s global strategy clearly proved beneficial in the first quarter,” said Scott Davis,chairman and CEO. “Our broad product portfolio and solutions-based approach to customers’logistics needs enabled the company to capture new business. In addition, our worldwideintegrated network generated significant margin expansion. With global economies showing signs ofrecovery and UPS’s strong start to 2010, we are optimistic about this year and the future.”
The International Package segment posted a 17.8% jump in revenue to $2,639 million as averagedaily volume went up 18% in Q1, 2010. The business improved its operating profit by 45% to $427million, and the operating margin rose to 16.2% from 13.1% one year earlier.
Export revenues rose 14.6% to $1,932 million and export volume increased 9.3% due to stronggrowth in all major trade lanes. Asian export volumes rose 20%, including a 37% rise in Asia-Europeshipments, while US and European exports were also strong, CFO Kurt Kuehn told analysts in aconference call. Non-US domestic revenues grew 25.9% to $584 million and volume increased 24.3%,driven by an acquisition in Turkey in the third quarter of last year, as well as 13% organicgrowth, powered by strength in core European countries.
For the full year, UPS expects export volumes to continue outpacing market growth along withstrong non-US domestic volumes, generating a strong increase in international operating profits,Kuehn added. UPS has added flights, including an 8% increase in block flying hours, in response tostronger demand and would increase capacity further in line with demand, he noted.
Asked about the impact of the European airspace closure on UPS, CEO Davis stressed the companyhad maintained collection and deliveries thanks to switching some flights to southern Europeanairports and transferring express volumes to its European ground network. “We are now back ontrack,” he commented, but said it was too early to assess the financial impact on the companyalthough it was likely to be “immaterial”. Davis also said he believed that companies are stillearly in the re-stocking phase and reaffirmed that UPS plans to compete domestically in China “downthe road” but will expand cautiously in the country.
UPS’ domestic US package business increased revenue 2.2% to $7,102 million and improved itsadjusted operating profit by 16.8% to $660 million in Q1, 2010. The adjusted operating margin wentup to 9.3% from 8.1%. Average volume per day was up slightly during the quarter, the firstyear-over-year growth in two years. Revenue per piece improved 2% due to increases in basepricing and higher fuel surcharges, partially offset by changes in product mix between ground andair services.
The UPS ground package business increased revenue by 3.1% to just over $5 billion on slightlyhigher volumes but next-day air revenue stagnated at $1.38 billion as volumes dropped 3.9%. On USdomestic trends, Kuehn said air volumes were likely to underperform compared to ground volumes thisyear but pricing trends were positive in both areas. While B2C volumes were still growing fasterthan B2B, UPS was encouraged by the recovery in B2B business.
The Supply Chain and Freight division increased revenue by 13.6% to nearly $2 billion and morethan doubled its adjusted operating profit to $91 million, pushing the margin up to 4.6%. TheForwarding and Logistics business increased revenues 16.2% to nearly $1.4 billion while roadhaulage unit UPS Freight increased revenue by 8.4% to $492 million.
Looking ahead, Kuehn added: “We expect first quarter trends to continue through the year,producing revenue growth and additional operating leverage. Therefore, UPS recently raised adjustedearnings guidance for the year to a range of $3.05 to $3.30 per diluted share, an increase of 32%to 43% over adjusted 2009 results.”
