UPS finished 2016 with strong revenue and volume gains, the Atlanta-based transportation and logistics said on its fourth quarter earnings call today.
Quarterly revenue was up 5.5 percent at $16.9 billion, while earnings per share at $1.63 came in below Wall Street expectations of $1.69 and full-year earnings per share was $3.87, with full-year revenue up 4.2 percent to $60.9 billion and setting a new company record. The company’s results also factored in a non-cash, after-tax, mark-to-market pension charge of $1.90 per diluted share, compared to a $0.09 after-tax charge per diluted share for mark-to-market pension charges for the same period a year ago.
Along with revenue and volume growth, which showed significant gains during the holiday season, UPS also cited strong service levels, and an “extraordinary” performance on the international side, among others, as drivers for growth.
“UPS produced record earnings in 2016,” said UPS CEO David Abney on an earnings call today. “We completed the initial stages of our long-term investment strategy, which enabled UPS to accelerate e-commerce and international shipping growth in the second half of 2016. For the fourth quarter, the international segment delivered another extraordinary performance, with shipment growth exceeding 7 percent and operating profit rising by double digits for the eighth consecutive quarter.”
Addressing Peak Season, Abney said UPS delivered more than 712 million packages globally, marking a 16 percent increase over the same period in 2015, with this record volume paced by strong and steady e-commerce demand. He added that the company’s facilitation of the e-commerce boom offers more growth and earnings potential as UPS further transforms its network.
“We will continue to invest in aircraft capacity and operating efficiency improvements in order to fully capitalize on e-commerce growth with an improved bottom line,” he said. “In the U.S., we completed investments that enabled our network to respond with on-time service with this record-setting volume, however, during the quarter, we experienced a significant shift in mix toward lower-revenue products. This, combined with the cost of facility investments to come online, weighed on our Q4 results.”
Abney also highlighted how in 2016 UPS completed nearly 200 facility projects and announced about 7 million square-feet of new capacity, which included a dozen all new facility or major modernization investments, with the company moving rapidly towards the completion of many of these projects.
Individual segment result for Q4:
UPS officials said that the significant product mix shift impacted its revenue per piece for the fourth quarter and impacted final results, coupled with the cost of network investments that have not yet come online also impacting quarterly results. They added that this underlines UPS’s to accelerate its multi-year investments in air and ground capacity and operational efficiency improvements, along with ensuring it is appropriately compensated for the costs it incurs to serve its customers.
“UPS had incredible volumes and the sheer numbers of packages in that increase is mind boggling,” said Jerry Hempstead, principal of Orlando, Fla.-based Hempstead Consulting. “Unfortunately UPS had parcel growth exceeding revenue growth. With the rate increases this relationship should tip the other way, however a change in service mix to lower yielding services has muted both top line and bottom line revenue. UPS is a solid company and if the economy picks up their earnings should surge. Sadly Wall Street will punish their stock for missing the top and bottom line expectation and the modest earnings forecast looking forward.”