How Did UPS Perform In Q1?

by Trefis Team
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UPS (NYSE:UPS) reported a pretty solid quarter to start off the year. The company managed to beat both the earnings and revenue estimates by a comfortable margin. Sales in the quarter benefited heavily on strong package volumes at the U.S. domestic and international businesses. That said, heavier than anticipated costs from Saturday delivery and adverse winter weather hurt operating results. Revenues in the quarter, increased by a massive 10% to $17.1 billion, while earnings came in at $1.55 per share. The company’s stock price jumped by nearly 4.3% through the day post the call.

  • As anticipated, heavy increases in costs through the quarter led to profitability issues this time around. Severe winter weather affected operations in the first half of the quarter, leading to a near negative $85 million impact on earnings. Further, earnings were also hurt on higher expenses incurred on network improvement initiatives, higher pension costs, and expansion of its Saturday delivery program over the last year. At the company’s core domestic segment, operating profit was down by about 20%, and was down around 6% overall.
  • UPS, like its main competitor FedEx, has spent million of dollars so far in an attempt to upgrade its delivery networks to efficiently handle the surge in e-commerce package volumes. As mentioned above, this has taken quite a toll on the operating profits. That said, one must keep in mind that these are necessary costs that will go quite a way to ensure long term revenue and earnings growth, as e-commerce continues to boom. Further, such a strategy is much more reliable than one in which the company pushes for higher prices and less volumes to improve financials in the short run.
  • The company managed to record heavy revenue increases across all businesses in Q1, most notably, the domestic and international segments, where revenues jumped by almost 7% and 15%, respectively. The jump in sales is attributable primarily to higher package volumes. We expect such a trend to persist through most of 2018, as well.

 

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