UPS today announced first-quarter 2017 operating results which show “healthy” revenue growth across each of its three business segments.
The highlights of the first three months of the year included a strong underlying performance in International which posted an operating profit of $529 million, rising to $648 million when currency effects are taken into account, and solid results in US Domestic with a 5% increase in revenue as package yield expanded on continued e-commerce demand. Supply Chain & Freight also built momentum during Q1 with operating profit jumping 22% on revenue growth of 13%.
On the downside, global operating profit growth was dampened by a fuel surcharge lag but UPS reaffirmed its full-year 2017 adjusted earnings per share guidance.
“Revenue came in strong this quarter with all segments adding to the topline,” David Abney, UPS chairman and CEO, said in a statement.
“We are accelerating investments to create the industry’s leading smart global logistics network and value-creating portfolio. UPS customers are benefiting from expanded capacity, choice and improved time-in-transit, while technology solutions continue to deliver efficiencies.”
Global revenue climbed 6.2% to $15.3 billion, the increase being 7.5% on a currency-neutral basis. Operating profit (currency-neutral) totalled $1.90 billion compared to $1.82 billion a year earlier.
Looking at the quarter in more detail, the US domestic segment benefitted from strong demand for e-commerce deliveries and revenue was up 5% over Q1 2016.
“The US consumer continues to transform retail consumption due in part to the simplicity, personal convenience and reliable delivery solutions offered by UPS,” the statement noted.
Revenue increased $451 million over Q1 2016 to $9.5 billion as B2C deliveries rose. Revenue per piece increased across all products, up 2.4% in total, as the company benefitted from previously implemented base rate pricing actions. Next Day Air and Deferred Air shipments were up 3.9% and 4.1% respectively. Operating profit was flat at almost $1.1 billion.
During the quarter, UPS expanded its US domestic service portfolio through an initiative to pick up and deliver Ground products on Saturday in 15 major metropolitan areas. This will be extended to more than 4,700 cities by the peak holiday season in 2017. Operating costs for facility construction and the Saturday initiative increased operating costs by approximately $35 million during the quarter. Headwinds from the fuel surcharge lag, some unusual weather and a facility fire, totalled about $50 million in one-time costs in Q1.
Turning to International, Abney underlined that the segment continued to show “excellent operating fundamentals and consistent quarterly improvement.”
It generated strong topline growth with increased demand for cross-border shipments. Export shipment growth was strong across all UPS regions, as customers took advantage of the company's expanded portfolio and “industry-leading” customs brokerage solutions.
Revenue totalled more than $3 billion, an increase of 4.9% over Q1 2016 and up 11% on a currency-neutral basis. Currency dragged $119 million this quarter and the full-year impact is expected to be more than $400 million.
The International operating margin was strong at 17.3%, despite the impact of unfavorable currency. Currency-neutral operating profit totalled $648 million compared to $574 million in Q1 2016.
“Customers increasingly selected UPS due to network and time-in-transit improvements, which generated robust, double-digit shipment growth of 14% in Export and 11% in non-US. domestic products.”
In the Supply Chain and Freight (SCF) segment, revenue increased 13% over Q1 2016 to $2.7 billion due to higher-performing business development programs and improved market conditions across all business units.
“We are extremely pleased with the growth and margin enhancing performance of the Supply Chain and Freight segment this quarter,” Abney said. “The team has been working on growth initiatives, cost reduction programs and business unit portfolio strategies to address unique market conditions for the last several quarters. These initiatives showed excellent progress.”
Tonnage increases in Freight Forwarding and UPS Freight increased revenue while healthcare, retail and aerospace sector performance enhanced strong Distribution results. Coyote Logistics continued to accelerate its growth strategies and gained market share during the quarter.
All SCF business units contributed to segment operating profit of $179 million – growth of 22% – as profit improvement programs generated stronger performance.
Commenting on the Q1 performance and the outlook, Richard Peretz, UPS' CEO said: “First quarter results continue to show the benefit of our operating plan improvements across all business units. Our current momentum, combined with accelerated investment initiatives gives us confidence in our ability to attain our full-year guidance.”
