UPS Delivers Stronger Package Volumes And Eyes European Growth
UPS (NYSE:UPS) results shows solid volume growth supported by its U.S. business and better pricing. Europe was weaker relatively and an area that UPS is looking to expand. This quarter also saw acquisition of European consumer delivery company, Kiala and UPS’ intentions to acquire TNT Express which would further solidify its non-U.S. operations. Going forward, the company expects a similar growth in the next quarter as well. UPS faces stiff competition from FedEx (NYSE:FDX) and national postal services agency USPS (United States Postal Service).
Revenue Growth Driven by Package Volume
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UPS reported revenues of $13.1 billion, a growth of 4.4% mainly through increasing daily package volumes. Though international packages showed a relatively weaker performance, U.S. domestic packages compensated for it by registering a 6.1% growth this quarter. Within U.S. domestic packages, Deferred Packages led all operating segments with package volume growth of 9.9% this quarter. On the international package front, Cargo division played a spoilsport with a 6.4% fall in revenues.
While the package volumes have shown robust growth, the change in average revenues per piece have also played their part on the revenues slightly. The revenue per piece for Ground Packages, which form 83% of the total U.S. domestic package volume, went up by 2.2% to $7.96. This compensated for a relatively lower package volume growth of 4% for ground packages in this quarter. At the same time, the revenue per piece has fallen by close to one percent in one of the best performing segments in terms of package volume growth: Next Day Air and Deferred Packages. A similar trend is seen in the Export segment where revenue per piece fell by 2.2% and package volumes went up by 5.4%. Overall, the average revenue per piece has increased by 0.9% this quarter.
Expansion Plans and Rising Demand to Fuel Growth
UPS has shown an inclination towards the European markets through the acquisition of Kiala this February. It also announced its intent towards acquiring TNT Express which is expected to get completed by third quarter of this year. These initiatives combined with strong demand for UPS products and services in Europe will diversify its global revenue figures. Post the acquisition of TNT, the company believes that the revenue share of Europe, Middle East & Africa region will increase from 14% to 22%. Further, these acquisitions open up new avenues for growth. The first quarter also saw capital expenditures worth $417 million that includes procurement of 3 additional aircraft for its fleet.
Fueled by these growth opportunities, the company expects the next quarter to maintain EPS at a similar pace compared to first quarter. Being short of one operating day, the third quarter is expected to be slower. However, the company expects to catch up at fast pace in the last quarter with peak season volume growth.
We have a $83.60 Trefis price estimate for UPS, which is about 7% ahead of the current market price. We are revisiting this in order to incorporate the trends witnessed during the past quarter.
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