UPS reports record Q1 profits in each of its segments

Once again, UPS knocked it out of the ballpark as it reported record first-quarter profits in all of its segments. Total revenue increased 27% to $14 billion while total operating profit jumped a staggering 158% to $2.8 billion. [caption id="attachment_414782" align="alignright" width="450"] Photo: UPS[/caption] An improving environment saw total average daily volumes increase 14.3% year over year and the international average daily volume increase 23.1%, with export growth from all regions. Exports from the Asia-Pacific region led the way, up 43% during the quarter. To handle the demand from the region, UPS added 25% more flights during the quarter and it also increased surcharges . Meanwhile, exports from Europe increased by 27.7%. Europe makes up 60% of total export business, according to UPS. The International group reported revenue of $4.6 billion, up 36.2%, led by Asia and Europe, and adjusted operating profit of $1.1 billion as compared to $558 million in Q1 2020. Healthcare goods led the growth in Asia exports and helped UPS’ freight forwarding group record profits in air and ocean services. Overall, revenues for the Supply Chain & Freight group increased to 34.3%, with adjusted operating profits of $395 million compared to $158 million in first-quarter 2020. But it was the US Domestic segment that continued to amaze. Productivity gains from route optimization and improvements in packages per hour led average revenue per piece for its Ground product to increase by 12.5% YoY from $8.74 in Q1 2020 to $9.83 for the first quarter of 2021, while average daily Ground volumes increased 14.7%. Productivity gains and increases in rates and surcharges certainly helped UPS’ bottom line. It’s likely such surcharges, now called “peak” surcharges and first introduced last year as a COVID-19 price increase, will stick around for a while longer. According to UPS’ CFO, Brian Newman, the company expects the imbalance between market demand and industry capacity to continue, which will likely mean a continuation of what started last year — applying surcharges to manage its demand along with setting limits on equipment for some shippers. CEO Carol Tome also discussed plans to expand the company’s Saturday delivery network to reach 90% of the U.S. population by October and expand Sunday deliveries. By offering a seven-day delivery service, UPS can “eliminate the lumpiness in mid-week deliveries.” On one of its earlier earnings calls, FedEx noted a similar opportunity and encouraged more of its customers to utilize weekend shipping. UPS will likely do the same. How long these grand slam quarters will continue remains to be seen, but the company is maintaining an eagle eye on its bottom line and investing in long-overdue projects such as simplifying its billing system and providing quotes online versus on the phone as part of its productivity improvement strategy. Capital expenditures of about $4.0 billion for the full year are much lower than in years past, but these expenditures also include additional technology investments to improve productivity and drive further revenue growth. Look for more technology enhancements within the Supply Chain & Freight division in particular. The company wants to keep the momentum going for the freight forwarding group and will need to continue investments to stand out in a crowded field.

UPS reports record Q1 profits in each of its segments

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