UPS achieves "extraordinary" growth despite challenging weather

UPS has overcome challenging weather conditions and rising fuel prices to achieve considerable growth in the final months of 2010. The company posted fourth quarter results this morning, revealing an 8.4% growth in global revenue to $13.42bn, and a 40% growth in global operating profits to $1.8bn.

Overall for the full year up to December 31, UPS revenues were up 9.4% year-on-year to $49.5bn, while adjusted operating profit jumped by 47% to $5.8bn.

Speaking to investors this morning, UPS chief executive Scott Davis and chief financial officer Kurt Kuehn described growth levels as “extraordinary” for such a challenging quarter, and expressed confidence that a rebounding global economy would mean further growth in 2011.

Commenting on a “great quarter in Q4, given challenges of fuel and weather”, the UPS executives did accept the possibility that continued weather disruptions could impact on first quarter results in 2011.

Davis said: “We’re still optimistic for the first quarter, but if this continues on in the same way it could cause pressure on the first quarter results. This kind of weather impairs the economy and we think we could see some impact on the retail side.”

Growth

The overall picture for UPS was one of considerable growth in revenues and particularly operating profits, outpacing the “moderate” growth in the improving global economy.

UPS delivered 1.1bn packages in the last three months of 2010, a 3.9% year-on-year increase spurred on by the Christmas season and a rising consumer confidence in retail markets – particularly in the US.

The company said double-digit e-commerce growth saw 440m packages delivered on just five days in December. Overall margins rose from the 10.2% level seen in the final quarter of 2009 to 13.5% in Q4, 2010, making the most of the increasing volumes.

Performances in the International Package and Supply Chain & Freight segments hit record levels during 2010, generating respectively $1.9bn and $577m in additional revenues for the full year.

Looking forward, the significant expansion of the UPS aircraft network last year is set to continue to some extent, with the anticipated delivery of two Boeing 747-400 aircraft and five 767s in 2011. However, the company’s executives told investors that their air fleet was now “in good shape” to make the most of expected growth this year.

Among market segments, UPS has set its sights particularly on opportunities in the healthcare market in 2011. Following a significant boost to its global healthcare distribution network last year, Davis said his company would look for added capabilities across the world this year, particularly in Asia, Europe and North America.

US domestic

After a year of restructuring, the largest segment in UPS operations saw revenues increasing 7%, from $7.55bn to $8.08bn, for the last quarter of 2010, with operating profit up 37% to $1.04bn.

Average per-day volumes rose 1.7% year-on-year through an “improving” economy, from 14.86m pieces to 15.12m, driven particularly by UPS Next Day and and UPS Ground services, while margins increased almost three percentage points to 12.9%.

UPS said increases in base pricing and higher fuel surcharges had seen revenues per piece improving 3.5%.

Going forward, Kuehn said he was expecting US package revenues to rise along with GDP in 2011 by around 3%, with “solid growth” in Next Day Air and Ground services this year.

Davis noted US efforts to increase its global trade, with expectations that the Obama administration’s goal to double exports would have to be driven by SMEs.

“Logistics is the great equalizer in this,” he said. “If the US is to grow its exports, small and medium enterprises are going to have to drive that, and that needs logistics.”

International

On the international side, a 9% growth came in the fourth quarter of 2010, as margins expanded to 17.6% on the back of rising volumes and cost-cutting measures.

An 8.7% increase in daily export volumes was driven by China, which saw a 30% boost to exports, while a “solid” performance in Europe was helped significantly by double-digit improvement in Germany.

International volumes for the whole of 2010 increased by 13.6% to a record 2.3m packages per day, with UPS expanding its global network capacity to meet the rising demand – including a 40% increase in aircraft capabilities in Asia.

Davis told investors that in 2011, UPS would build on demand in Asia with its new intra-Asia hub at Shenzhen, China, looking to expand in Vietnam, Malaysia and Indonesia as well as in China with 100 new locations there.

Supply Chain & Freight

In its Supply Chain & Freight segment, UPS posted a 13% increase in revenues for the fourth quarter of 2010, to $2.29bn. Adjusted operating profits were up more than six-fold from the $28m posted this time last year, to $176m.

UPS said its UPS Freight division outpaced its rivals, with revenues up 23% and double-digit growth in shipments per day. Forwarding and Logistics revenue increased 10.1% to $1.6bn.

Kuehn said there was a “long way to go” in turning around freight performances after a price war with its competitors, particularly in the less-than-truckload (LTL) market, but added that his company was now “highly optimistic on freight” going forward.

“Clearly it’s been a humbling two years, but we think we’re on the right track with LTL,” said the UPS CFO.

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