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UPS sees Q3 profit declines

By Hpanchal on October 23, 2012

Charges related to UPS’ restructured pension plan caused the integrator’s net income to plunge 56.3 percent, year-over-year, to $469 million in the third quarter of 2012. Revenue, however, only dropped slightly during the three-month period that ended September 30, falling from $13.17 billion to $13.07 billion, year-over-year.

Lower revenue or not, UPS saw its average daily package volume surge 2.9 percent, year-over-year, to 15.5 million packages per day and posted growth in its U.S. Domestic Package sector during the third quarter. UPS’ International Package and Supply Chain & Freight segments weren’t quite so profitable in the third quarter, however; revenue in these sectors declined 3.7 percent and 3.2 percent, year-over-year, respectively.

The latter segment, in particular, took a hit during the quarter. Although UPS Supply Chain & Freight’s operating margin only dropped from 8.7 percent to 8.3 percent, year-over-year, the segment’s operating profit plunged $15 million during the third quarter. UPS explained in a press release that declines related to overcapacity in the company’s freight forwarding unit — especially in Asia — offset increases in the UPS Freight sector.

UPS recorded similar discrepancies in its International Package sector during the third quarter. Despite posting lower revenue, the sector’s operating profit rose to $449 million during the three-month period, its highest-ever third-quarter total. In the press release, UPS attributed export package growth, network modifications and currency translation with this increase. Unfortunately, UPS explained, lower fuel surcharges and currency offset the segment's export volume surge.

The company’s U.S. Domestic Package sector also posted declines during the third quarter. Despite revenue in this segment surging $94 million from the third quarter of 2011, operating profit dropped $21 million, a decline largely related to the timing of the fuel surcharge.

Still, strong e-commerce growth led to higher daily package volume, with UPS’ Deferred and Ground sectors up 9.3 percent and 3 percent, year-over-year, respectively, during the third quarter. UPS’ Next Day Air volumes also rose during the three-month period, improving 5.7 percent from July-to-September 2011.

All things considered, UPS Chairman and CEO Scott Davis said he's impressed by the company’s third-quarter performance. “Our results were achieved in an environment of slowing global trade and changing market dynamics,” he said in a statement. “This not only highlights the flexibility of our business model; it illustrates the breadth of the UPS product portfolio in meeting the needs of customers.”

The company also has plans to expand its product portfolio. UPS is currently in the process of acquiring European rival TNT Express for €5.16 billion.

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