UPS Profit Surges Amid E-Commerce Gains

The United Parcel Service Inc., Atlanta, reported yesterday that its fourth-quarter earnings rose more than 37 percent, ahead of expectations, as a result of income from international operations and Internet transactions.

In its first earnings report as a publicly traded company (last year it sold 9 percent of its equity for almost $5 billion in the largest U.S. initial public offering) UPS said for the three months ended Dec. 31, 1999, net profit was $661 million, or 56 cents per diluted share, up from $482 million, or 43 cents, in the year-earlier quarter. The company, which handles more than 3 billion packages each year, had been forecast to earn 55 cents a share, according to analysts.

In addition, revenues totaled $7.45 billion, up 11.7 percent compared with the $6.66 billion reported for the same period a year earlier.

According to Robert J. Clanin, UPS chief financial officer, the following are reasons for this improvement:

• Total global package volume increased 5.6 percent over 1998’s fourth quarter, including a 10.4 percent increase in volume in domestic Next Day Air, and an 18.3 percent increase in volume in export products. In the fourth quarter, UPS averaged 114.24 million pieces a day.

• UPS’ international operating profit more than doubled and reached $82 million for the quarter.

• Starting Oct. 1, UPS’ operating profits included income from the insuring of packages with declared values of more than $100. For the fourth quarter, this move added an additional $60 million to UPS’ operating costs.

• UPS’ interest income was positively affected by interest it received on the IPO proceeds. However, this income stream will cease once the company completes its tender offer.

The healthy volume numbers can be attributed to the fourth quarter’s busy, holiday peak shipping season, when consumers embraced Internet shopping.

While the company could not say how many packages it shipped specifically as a result of e-commerce, it said online tracking activity at UPS’s Web site established a new all-time record of 3.3 million requests in a single day. And the combined air/ground volume on the single busiest day of the peak season hit 18.7 million packages compared to the 18 million packages that were forecast.

“We see this is as strong evidence of consumers increasing acceptance of the Internet and retail e-commerce and UPS’ ability to provide logistical solutions to major e-tail customers,” said Clanin. “Good weather, a strong economy, and a flexible and solid logistics plan allowed UPS to help a number of key customers cope with unexpected surges in demand, particularly those who rely heavily on Web-based orders.

Clanin said international volume was driven primarily by Asia, Europe and Canada. In addition, he said, the UPS took steps to strengthen its international and logistics businesses this quarter with acquisitions that included French logistics company Finon Sofecome, TransBorder Customs Services and Rollins Dedicated Logistics. UPS also invested internationally in an Asian e-commerce firm known as NetCel360 Ltd. UPS will provide NetCel360 with extensive supply chain management services throughout the region.

Clanin said he “anticipates export profits continuing to grow at a strong double-digit rate, with Europe and Asia growing in excess of 20 percent.”

“We expect another good year in 2000 as these positive trends continue,” said Clanin. “We anticipate solid growth in our ground products and continued strong growth in premium air products.”

UPS was not the only carrier to experience an increase in volume shipments and revenues during the holiday season. The U.S. Postal Service, UPS’ key competitor in the e-tailing arena, recently reported that volumes during Accounting Period 4 — which took place between Dec. 4 and 31 — increased 18.3 percent over the same period the year before. In addition, revenue increased 27.9 percent.

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