UPS turns in strong Q1 performance

First quarter 2017 earnings for UPS were positive on various fronts, based on results issued by the Atlanta-based transportation and logistics bellwether today.Quarterly revenue at $15.3 billion was up 6.2 percent annually, and earnings per share at $1.32 rose 3.8 percent compared to the first quarter of 2016 and beat Wall Street expectations of $1.29 per share. Operating profit fell 2.1 percent to $1.784 billion.“In February, we laid out our investment strategy for the next three-to-five years,” said UPS CEO David Abney on an earnings call today. “The cornerstone was accelerating investment in our Smart Global Logistics Network, which represents to most sweeping transformation of our network in decades. We are stepping up the pace of investments now to enable UPS to better participate in the vast opportunities we see ahead. The benefits from these revenues and improved productivity will be fully realized in the coming years and quarters. As these investments become operational, the market dynamics and customer demand experienced in the first quarter deepen our confidence that we are on the right track.”Looking more closely at the first quarter, Abney said UPS is very pleased with the revenue gains achieved at each of its three operating segments, but even though revenues were strong operating ratios were impacted by some headwinds.And in addressing the economy, he said the U.S. economic outlook has improved over the last few months, with growth expected to move slightly higher for the remainder of the year.“Consumer confidence is at a 15-year high, and the labor market has tightened,” he said. “Economists have included additional growth in their forecasts from the Administration’s efforts to modify trade agreements, reform tax policy, and upgrade infrastructure. We support efforts that boost trade, remove unnecessary regulations, and stimulate real GDP expansion. Over all, global economic forecasts are largely unchanged, with economists still projecting faster expansion in the near term and an accelerated pace of global trade. We are already seeing those trends at work in our results in Europe and Asia.” Individual segment results: U.S. domestic revenue rose 5.0 percent to $9.5 billion, with operating profit off 2.4 percent at $1.076 billion, average daily U.S. domestic package volume up 2.6 percent (Deferred Air products up 4.1 percent, Next Day Air up 3.9 percent, and Ground products up 2.3 percent. Revenue per package inched up 2.4 percent, with Next Day Air up 1.6 percent at $19.76, Deferred up 1.8 percent at $12.17, and Ground up 2.3 percent at $8.29;International Package revenue was up 4.9 percent at $3.058 billion, with UPS citing increased demand for cross-border shipments, while export growth was solid across all regions. Total daily International Package volume was up 12.1 percent, with daily international domestic and export packages up 10.5 percent and 14.2 percent, respectively. Average revenue per package dropped 0.94 percent to $15.45; and total consolidated revenue per package for U.S. domestic and international packages rose 1.1 percent to $10.50Supply Chain and Freight revenue was up 12.5 percent to $2.7 billion, due to growth initiatives, cost reduction programs, and business unit portfolio strategies addressing what UPS CEO Abney called “unique market conditions for the last several quarters.” LTL revenue was up 9.6 percent at $618 million, with revenue per hundredweight up 1.5 percent at $23.60, and shipments up 4.2 percent at 2.517 millionUPS CFO Richard Peretz said on the call that UPS’s core business performance for the quarter was slightly ahead of plan, however, some known, and unexpected headwinds affected bottom line performance in both the U.S. and international segments, including currency changes weighing on international results. And he added that fuel was a drag in the quarter on operating profit, with Q1 fuel surcharges based on lower fuel prices in November 2016 and the timing lag created a nearly $30 million shortfall for the U.S. domestic segment.“Expenses for investment projects and service enhancements will continue to weigh on operating profit for the remainder of 2017,” he said. “However, as new areas of the country come online for Saturday delivery, new revenue will begin to offset deployment costs later this year.”