UPS said today it is optimistic of returning to international operating profit growth now the‘distraction’ of its planned TNT Express acquisition is out of the way and with some signs of
improving global trading conditions, after reporting a drop in international operating profits inthe fourth quarter. Executives also signalled possible smaller acquisitions in Europe.On an adjusted basis, the US company’s Q4 group operating profit increased 1.5 per cent toUS$2.05 billion, on revenues up 2 per cent at $14.57 billion, although the adjusted operatingmargin slipped to 14.1 per cent from 14.3 per cent in the fourth quarter 2011.
However, a $3 billion one-time pension accounting charge led to an overall operating loss of$2.78 billion. Total shipment volumes averaged 18.8 million pieces per day, an increase of 2.9 percent over the prior-year period.
Growth in B2C volumes, driven by online retail, boosted the company’s US domestic business,where daily package volume was up 3 per cent, led by 7.7 per cent growth in the company’s Next DayAir product, while ground improved 3 per cent. On an adjusted basis, domestic operating profitincreased $58 million or 4.4 per cent, and operating margin expanded to 15.4 per cent, “despitechallenges created by Hurricane Sandy”. Revenue grew 3.0 per cent and revenue per piece increased1.7 per cent, “driven by base-rate improvements in both ground and air products”.
Strong demand for UPS products in Asia and Europe led to a 5.5 per cent increase in averagedaily export package volumes, increasing revenue to $3.2 billion. But adjusted operating profit wasdown by just over 1 per cent to $499 million, as customer and product mix changes drove a 3.5 percent decline in export yields, on a currency-neutral basis.
UPS chairman and CEO Scott Davis said: “You have to see those international figures inperspective. Over the last two quarters, we have had a very large team working on the TNTtransaction. That team is now coming back, and that will enable us to improve that internationalyield.”
Asked today whether UPS had learned anything about the European market from its due-diligenceprocess with TNT, Davis said: “We did learn that the regulator process is a complicated one thereat the Commission.
“The biggest impact of our time working on the TNT acquisition was that it put a lot ofthings on hold. We have a great history in Europe, but we did slow down some of our initiatives,”Davis continued. “So it is really about kicking back into gear with our growth strategy there.”
Head of international, Dan Brutto, said export volumes out of Germany, the UK and Italy hadbeen increasing, although figures from the Netherlands and Spain had deteriorated. Brutto said thecompany would be looking at possible acquisitions, “although nothing on the scale of TNT”.
He added: “There are opportunities for us to expand, for example in eastern Europe”, althoughhe claimed UPS already had the best product portfolio in Europe, “all the way from ocean freight toexpress air”. Nevertheless, the company was looking to continue developing its European presence. “TNT would have helped us to get there faster, but there are still a lot of opportunities there.”
Davis said there were also signs that the global economy was returning to “more normal”trading conditions, and that expected global trade growth would start to outperform GDP growthagain, although it was unclear what that ratio would be.
He said that overall he still sees 2013 as a “slower-growth economy”, although there weresome positive signs. “I think the good signs are that we see a more stable Europe that we saw ayear ago,” Davis said.
“We’re starting to see a pickup in global trade, which is very important to us as we lookforward. In the second and third quarters of 2012, we saw global trade lag global economic growth,which was very unusual. So it feels like that is getting more normal.
“Yesterday’s GDP numbers indicated that inventory was very low, so I think we’re seeingrestocking of inventory early in January. I’m still cautious as we move through the year. I thinkwe are going to see growth in the US, but I think we are still going to be addressing the deficitin the second quarter, and that is creating some uncertainty and causing some challenges.”
Davis said the US economy would continue to underperform until politicians in Washington “make some compromises”, although he said the situation in terms of the US so-called “fiscal cliff”had eased.
The company is expecting US GDP growth of around 2 per cent and global GDP growth ofsomewhere around 2.5 per cent, “so certainly not a barnstormer year”, said CFO Kurt Kuehn. “Weexpect under-trend performance again in 2013.”
Davis concluded: “2012 presented its challenges, most notably weak global trade. Nonetheless,UPS executed well. Despite modest macro growth expectations for 2013 and uncertainty in the UScaused by the lack of progress in Washington, the UPS business model will deliver consistentresults, with operating profit growth in all segments.”
