UPS sees growth for Q4 and full-year 2017 earnings

Fourth quarter and full-year 2017 revenue and volumes were strong, Atlanta-based transportation and logistics titan UPS said on its earnings call today.

Quarterly revenue was up 11.2% at $18.8 billion, while earnings per share at $1.67 topped Wall Street estimates of $1.67, and full-year earnings per share at $6.01, with full-year revenue up 8.2% annually at $65.8 billion.

“In 2017, UPS made significant process on our strategic initiatives, expanding our capabilities, implementing new technology, and further penetrating high-growth markets,” said UPS CEO David Abney on today’s earnings call. “The successful execution of our growth strategies was apparent in strong revenue gains made across all segments of the business. In the fourth quarter, we produced one of the highest revenue growth rates of the last decade…and we generated healthy returns on capital investments.”

Addressing economic conditions, Abney said that after attending the World Economic Forum in Davos, he is more optimistic about the global economy and the opportunities that exist. And given the favorable economic outlook and the momentum that carried over from 2017, UPS expects demand for its services to be robust throughout 2018.

“To support this growth, we are bringing our largest network expansion in recent history online this year,” said Abney. “Another reason for optimism is the passage of the Tax Cuts and Jobs Act, which is already producing economic growth and improving U.S. competitiveness around the world. The savings we are realizing from tax reform will enable us to unload significant resources across the organization. UPS will increase investments in our people, technology, fleets, facilities, and our portfolio. The growth in e-commerce, cross-border trade, and the needs of our customers for specialized services are creating unprecedented demand for our domestic and international air services.”

Citing the benefits from the Tax Act and the company’s tremendous growth opportunities, he said UPS is purchasing 14 additional 747-8 aircraft and 4 new Boeing 767 freighters.  And he added that UPS is rapidly moving through the evaluation stage in identifying additional multi-year, value-creation opportunities, with the company sharing more information on those efforts later this year. 2018 capital expenditures for UPS will be between $6.5-$7.0 billion.

The company also said it will invest more than $12 billion in its Smart Logistics Network, increase pension funding, and further grow shareholder value.

Individual segment result for Q4:

• U.S. domestic package revenue increased 8.4% to $11.8 billion, with operating profit off $570 million annually at $1.264. Average daily shipments were up 5.4% to 20.5 million, with Next Day Air up 3.9% at 1.905 billion, Deferred up 9.8% at 1.429 billion, and Ground up 9.3% at $8.5 billion. Revenue per package was up 2.9% at $912, with Next Day Air down 1% at $18.22, Deferred up 7.4% at $12.14, and Ground up 3.4% at $7.91;
• International Package revenue on an adjusted basis was up 12.5% at $3.753 billion, which UPS said was driven by premium product, with export shipment growth up 16% per day. Domestic international package average revenue per piece was up 13.3% at $6.31, with export average piece per package revenue down 3.4% at $28.50; and 
• Supply Chain and Freight revenue was up 20.8% annually at $3.241 billion, with an adjusted operating profit of $270 million. LTL revenue was up 10.5% at $758 million, and LTL revenue per hundredweight was up 5.2% at $24.63. Total quarterly shipments were up 0.7% at 2.464 million, and shipments per day at 40,400 were up 0.7%

Looking back at the 2017 Peak Season, Myron Gray, UPS president of U.S. operations, said UPS hit record volume levels, which demonstrated strong demand for the company’s services.

“We made 762 million deliveries worldwide, which was 7% more than last year and 12 million more than our initial plan,” he said. “We delivered more than 30 million packages on 90% of the days between Thanksgiving and Christmas. By comparison, just two years ago only 20% of peak days were over 30 million. While growth was strong, variability of digital demand created challenges during the peak period, as volume accelerated above our projections. In the U.S., online orders created during the record-setting Cyber Weekend resulted in nearly 20% more package volume. And last year coming out of the weekend volume growth continued to be strong. The early surge put our U.S. network above maximum capacity; the added cost increase to our operating expenses by about $125 million.”

Gray said UPS recovered well after managing this initial surge, with improvements in a broad range of measures, including cost-per-unit and on time service. What’s more, he said UPS’s strategies and investments are focused on operating its network with a higher degree of real time flexibility, while bringing new technologies online and adapt to UPS operations. This year, he noted, UPS will see a significant shift in technology-enabled volume processing, with a phase in of much more highly automated capacity.

Globally, UPS expects to open 18 new or retrofit facilities this year, which includes three major U.S. ground hubs that will be the first ones UPS has added in more than two decades, with the majority of these facilities in the U.S. in key areas that were constrained during peak season. These new facilities will add more than 5 million square-feet of flexible technology-driven capabilities, and UPS in 2018 is adding six times more sorting capacity and three times as many car positions as it added last year.

“Once again UPS reported another 4th quarter of profitless prosperity in their domestic business,” said Jerry Hempstead, president of Hempstead Consulting. “Gray pretty much fell on his sword by admitting he did not adequately plan for the volumes that came in, that the service level disappointed many, and that operating costs rocketed out of the stratosphere in the attempt to dig out. Investors have heard this story before. The prophecy now is that UPS is going to invest in technology, facilities and aircraft and the promise that things will be much better in the future so stay tuned.”