PARCEL has asked Doug Kahl, Vice President at TranzAct Technologies to provide a brief analysis of UPS’ recent pre-announcement of First Quarter Earnings and some insight on what we may hear on next week’s Earnings Call.
Last week UPS pre-announced a 37% increase in adjusted diluted earnings per share for the first quarter of 2010 ahead of their scheduled earnings call of April 27th. UPS stated that the results were powered by a significant acceleration in the international package and supply chain businesses and improved operating margins across all three segments.
Revenue by segment for the past three years is summarized below.
Last week UPS pre-announced a 37% increase in adjusted diluted earnings per share for the first quarter of 2010 ahead of their scheduled earnings call of April 27th. UPS stated that the results were powered by a significant acceleration in the international package and supply chain businesses and improved operating margins across all three segments.
Revenue by segment for the past three years is summarized below.
Revenue By Segment
Revenue U.S. Domestic Package International Package Supply Chain & Freight
2009 $45.3b 62% 21% 17%
2008 $51.5b 61% 22% 17%
2007 $49.7b 62% 21% 17%
Source: UPS Annual Reports
First quarter consolidated revenues increased over 7% lead by the International Package segment’s 18% revenue gain and Supply Chain and Freight revenue gained 14%. Export volume growth was 9%, non-U.S. domestic volume growth 24%, and U.S. Domestic daily volume reportedly up less than 1%; however, this is the first year-over-year growth reported in more than two years.
The earnings and revenue numbers are impressive. One number that stands out is the 24% growth in non-U.S. domestic volume. In the 2009 Annual Report, UPS outlines some of the strategic investments being made in a new air hub in China, acquisition of their service agent in Turkey and establishing a joint venture in Dubai. They also mention new international offerings by initiating domestic express pickup and delivery services in 22 additional countries, bringing this total to 55. Will be listening to hear if the reported growth is tied more to expanding global economic activity or to the expanded service portfolio.
“We expected the first quarter to be the most challenging of 2010 as the economic recovery gathered steam through the year. Revenue was stronger than expected due to international volume gains, increased yields in the U.S. and growth in Forwarding and Logistics. Also the operating leverage in our streamlined network provided higher margins than anticipated” said Kurt Kuehn, UPS’ chief financial officer. Although yield and margin improvement are mentioned, no reference to U.S. Domestic segment revenue was made in the pre-announcement.
In 2009 UPS implemented a number of cost management initiatives including network changes, realignments, and reduced capital expenditures to weather the economic downturn. Additional go to market strategies, streamlining the U.S. small package structure, and how they deliver their solutions to small and medium-sized (SMB) customers were also mentioned in the latest annual report.
More detail will likely be given on changes in package characteristics, particularly service mix and weight per package. Also, during last quarter’s conference call, base rate pricing was stated as the number one priority heading into 2010 and we’ll be looking for indications on the level of compliance to this year’s annual rate increase. Finally, this is really the first quarter where the impact of DHL’s move out of the United States will have been annualized and it will be interesting to hear what impact this rollover had on the domestic segment. A pre-announcement can only cover so much and it will be interesting to hear the story behind the details next week.
Revenue U.S. Domestic Package International Package Supply Chain & Freight
2009 $45.3b 62% 21% 17%
2008 $51.5b 61% 22% 17%
2007 $49.7b 62% 21% 17%
Source: UPS Annual Reports
First quarter consolidated revenues increased over 7% lead by the International Package segment’s 18% revenue gain and Supply Chain and Freight revenue gained 14%. Export volume growth was 9%, non-U.S. domestic volume growth 24%, and U.S. Domestic daily volume reportedly up less than 1%; however, this is the first year-over-year growth reported in more than two years.
The earnings and revenue numbers are impressive. One number that stands out is the 24% growth in non-U.S. domestic volume. In the 2009 Annual Report, UPS outlines some of the strategic investments being made in a new air hub in China, acquisition of their service agent in Turkey and establishing a joint venture in Dubai. They also mention new international offerings by initiating domestic express pickup and delivery services in 22 additional countries, bringing this total to 55. Will be listening to hear if the reported growth is tied more to expanding global economic activity or to the expanded service portfolio.
“We expected the first quarter to be the most challenging of 2010 as the economic recovery gathered steam through the year. Revenue was stronger than expected due to international volume gains, increased yields in the U.S. and growth in Forwarding and Logistics. Also the operating leverage in our streamlined network provided higher margins than anticipated” said Kurt Kuehn, UPS’ chief financial officer. Although yield and margin improvement are mentioned, no reference to U.S. Domestic segment revenue was made in the pre-announcement.
In 2009 UPS implemented a number of cost management initiatives including network changes, realignments, and reduced capital expenditures to weather the economic downturn. Additional go to market strategies, streamlining the U.S. small package structure, and how they deliver their solutions to small and medium-sized (SMB) customers were also mentioned in the latest annual report.
More detail will likely be given on changes in package characteristics, particularly service mix and weight per package. Also, during last quarter’s conference call, base rate pricing was stated as the number one priority heading into 2010 and we’ll be looking for indications on the level of compliance to this year’s annual rate increase. Finally, this is really the first quarter where the impact of DHL’s move out of the United States will have been annualized and it will be interesting to hear what impact this rollover had on the domestic segment. A pre-announcement can only cover so much and it will be interesting to hear the story behind the details next week.
