Strong growth in US B2C parcels, record pre-Christmas volumes and solid growth in Europe offsetstagnating Asia volumes and delivered higher profits in Q4, 2011, UPS announced today along with a
positive outlook for further profits growth in 2012.Despite the mixed global macro-economic outlook for 2012, the world’s largest parcels company isnow predicting better business in the USA this year as the economy improves modestly together withhigher international profits.
In Q4, UPS increased overall revenues by 6% to $14.2 billion with package volumes rising 3.6% to1.13 billion. The company delivered 480 million packages during the peak shipping season betweenThanksgiving Day and Christmas, driven by e-commerce.
Profits were impacted in Q4 by the announced pension accounting change with reported operatingprofit of $1.2 billion, down 28% from $1.7 billion, and net profits 29% lower at $725 million. Butadjusted operating profit, excluding the pension accounting effect, climbed 17% to more than $2billion and the operating margin rose to 14.3% from 12.9% one year earlier. Similarly, adjusted netprofit was up 17% at $1.25 billion.
For 2011 as a whole, UPS revenues grew 7.2% to $53.1 billion. Reported operating profits rose7.8% to $6 billion and net profits grew 14% to $3.8 billion. On an adjusted basis, operatingprofits rose 20% to $6.9 billion and net profit was 23% higher at $4.3 billion.
“UPS delivered record fourth quarter results in volume, revenue and profitability,” said ScottDavis, UPS chairman and CEO.
The US domestic business performed strongly in Q4, 2011, powered largely by the boom in onlineshopping and the resulting rise in home deliveries of parcels. US Domestic revenues grew 7.3% to$8.7 billion with average daily volumes up by 3.8% to 15.7 million packages. Adjusted operatingprofits soared 30% to $1.3 billion, driving the margin up to 15.2% from 12.6%. Average daily Groundvolumes grew 3.5%, Deferred Air shipments increased 12.3% but Next Day Air volumes dropped 1%.Revenue per piece increased 3.4% with higher base rates and fuel surcharges, offset by loweraverage package weight and changes in customer and product mix.
CEO Scott Davis said on an analysts’ call that the US economy was performing better than hadbeen expected in August-September. UPS had seen “robust growth in e-commerce” and “a continuedmigration to B2C”, with a resulting rise in residential deliveries, he pointed out. The new B2Cservice, MyChoice, had proven a success with 750,000 subscribers in the first three months andthree million deliveries.
CFO Kurt Kuehn said UPS had been “pleasantly surprised” by Christmas demand in 2011 and notedthat about half of the growth had come from the new “Sure Post” product, which uses USPS to deliversmaller and lighter shipments at lower rates. Moreover, the Deferred Air growth was partly due toUS internet retailers differentiating their products by offering a choice of transit times, hecommented. This had also contributed to a drop in average shipment weights. The fourth quarter wasgenerally becoming more important due to the B2C growth with two separate peak periods, headded.
In contrast, UPS saw profits for its International Package business slip back despite continuedvolume and revenue growth. The division increased revenues by 3.5% to $3.15 billion with exports up4.5% on an average daily basis. Revenue per piece increased 2%, which was 3.9% on acurrency-neutral basis. However, the adjusted operating profit fell 4.5% to $505 million due mostlyto heavy currency effects, leaving the margin at 16%, down from 17.4%.
International volume growth was driven by European exports and strong intra-regional growth inAsia but Asia-US volumes dropped about 3%. CFO Kuehn said that the company’s US exports haddeclined due to stronger dollar, Asia exports were flat compared to the previous year and behindexpectations but UPS had achieved “resilient” single-digit export volume growth in Europe. WithinEurope, UPS had “upper single-digit” intra-Europe growth, with strong rises in Poland, Turkey andFrance, he said. “Reports of Europe’s demise have been exaggerated a lot,” he quipped.
In 2012, UPS aimed to increase International volumes by 5-6% and revenues at a mid-to-highsingle-digit rate and improve operating profits about 10%, Kuehn said. Although the internationaloutlook was mixed and it was too early to predict Asia trends, Europe would remain solid, hepredicted. In response to an analyst’s question, Kuehn confirmed that more US shippers wereinterested in ‘near-sourcing’ from Mexico in response to “a very extended supply chain” and risksfrom natural disasters.
UPS’s Supply Chain and Freight division improved its adjusted operating profit for Q4, 2011 by11% to $199 million on revenue growth of 2.1%. The adjusted operating margin for the segmentincreased 70 basis points to 8.5%.
Looking ahead, CEO Davis commented that although slower worldwide economic growth was expectedin 2012, the USA was one of the few economies where stronger growth was expected than in 2011. USfirms had low inventories at present and might need to increase stocks in the months ahead, hesaid. Moreover, Asia was still projected to outgrow the rest of the world, he noted.
Kuehn said UPS expected to increase US Domestic volumes about 2-3% in 2012, increase revenues ata mid-single-digit rate and improve operating profits at a single-digit rate. “Looking to 2012, ourexpectations are for mixed economic growth around the world, with modest improvement in theU.S. However, UPS projects another strong year of earnings,” he continued. “We expectdiluted earnings per share to be within a range of $4.75 to $5.00, an increase of 9% to 15% overadjusted 2011 results.
