“Unusually harsh weather” cost UPS $200m in Q1
UPS said today that the “unusually harsh” weather in the United States this winter cost it $200m in the first quarter of the year. The package delivery giant reported its first quarter (2014) results today showing operating profits were down 6.6% compared to the same period last year, to $1.5bn.
While the company’s international business brought “strong” growth in the quarter, and supply chain and freight activities were as expected, the UPS domestic division saw disappointing results in the first few months of the year.
The Atlanta-based firm said the increased expense of dealing with intense US snowfalls, shipping refunds and increased overtime, along with the loss of revenue as US businesses also closed down during poor weather, led to a 6c drop in earnings per share, to $0.98.
The UPS network saw buildings shutting down on 34 days during the quarter, according to chairman and CEO Scott Davis.
“Much of the U.S. economy was negatively affected by the severe weather conditions in the first quarter, resulting in lower UPS operating results versus the prior year,” said Davis.
Similar weather issues hit UPS results in the final quarter of 2013. By comparison, the winter weather cost rivals FedEx $125m, although FedEx has a smaller package business than UPS.
US domestic
US domestic operating profit was $927m, down $158m on the previous first quarter, on $8.5bn of revenue, up 2.6% year-on-year. While growth came in sales overall, UPS said revenue per package was down 1.5% in the US as customers continued to move from premium products to more economical options.
Business-to-business volume suffered through the weather, but e-commerce-driven business-to-consumer activity remained “robust”, with the company seeing its proportion of residential delivery pushed up to close to 44%.
International
The international division saw revenue up 5% year-on-year to $3.1bn, with operating profit up 12%, thanks to the best volume growth seen since mid-2010. Work improving network efficiencies has come hand-in-hand with market growth with export volumes up 7.7%, particularly driven by Europe, where UPS has just completed the $200m expansion of its hub at Cologne airport.
The company saw good growth in emerging markets, said Asia was on track and growth is anticipated in Latin America where the company has been making significant investments recently expanding its infrastructure, particularly to handle more healthcare business.
“Encouraged”
In the rest of the year, the company believes it will see higher package growth in the United States, with e-commerce and the UPS SurePost service particularly pushing improvements. Expectations for the international division remain unchanged, although executives believe the situation in the Ukraine may have impacts on European business this year.
“During the quarter, the momentum of the underlying business was masked by the disruption of inclement weather,” said Kurt Kuehn, UPS chief financial officer. “We are encouraged by the positive trends in our business and expect the remainder of the year to perform as we originally guided. However, due to the challenging start to 2014, we anticipate diluted earnings per share to be at the low end of our full-year guidance range of $5.05 to $5.30.”
