Strong growth in international export shipments, led by Asia and Europe regions, together with revenue climbs in its US domestic business were the stand-out features in UPS' fourth quarter 2016 performance.
As for last year as a whole, the US package delivery giant posted record revenue totalling $61 billion and produced $6.5 billion in cash from operations.
Speaking at a conference call earlier today, following the publication of the Q4 and full-year results, David Abney, UPS chairman and CEO, said : “For the fourth quarter, the international segment delivered another extraordinary performance with shipment growth exceeding 7% and operating profit rising by double-digits for the eight consecutive quarter.
“Over the last two years, our international business has built a strong foundation generating 30% incremental profit growth. This positive momentum in our core international business model will continue going forward.”
Commenting on the 2016 peak season, Abney noted that UPS had helped its customers complete another successful holiday season.
“We delivered more than 712 million packages globally, a 16% increase over the same period last year. This record volume was driven by steady e-commerce demand throughout the period. Our embrace and in reality our facilitation of the e-commerce boom offers even more growth in earnings potential as we further transform our network. We will continue to invest in air and ground capacity and operating efficiency improvements in order to fully capitalise on the e-commerce growth with an improved bottom line.
The expansion of e-commerce is expected to continue (in 2017) with another year of double-digit growth, he added.
Abney also highlighted the investments in the US which UPS had completed in Q4 “that enabled our network to respond with on-time service even with this record-setting volume.”
However, on the downside, UPS had experienced a significant shift in mix toward lower revenue product during the quarter and this weighed on its results.
Focusing on Europe, Abney said UPS had already completed one-third of its $2 billion network expansion and re-design programme.
“Many of these investments are starting to contribute to our strong international segment performance. We have more announcements planned as part of our US and European investment programmes in the coming months.”
Abney also referred to the beginning of “a new political era” in the US.
“We look forward to working with the Trump administration and congress. We expect the economy to be centre-stage along with efforts to strengthen US competitiveness. There are opportunities for progress on a number of critical issues that impact economic growth.”
Turning to UPS' Q4 results in more detail, the company delivered 1.4 billion packages, up 7.1% over last year.
Total revenue rose to almost $17 billion compared to $16.1 billion a year earlier.
A reported operating loss of $428 million was transformed into a profit of $2.22 billion when expressed on an adjusted basis.
Full-year and fourth-quarter 2016 results included a non-cash, after-tax, mark-to-market pension charge of $1.90 per diluted share. The figures for adjusted operating profit exclude this charge.
In the prior-year period, the company reported non-cash, after-tax charges of $0.09 per diluted share related to pension mark-to-market charges.
In the US Domestic Package business, revenue increased to $10.9 billion, a 6.3% increase over Q4 2015. Average daily shipments increased 5.0% to 19.6 million.
Q4 produced an operating loss of $570 million but this was transformed into an adjusted operating profit of $1.3 billion.
“Benefits from ORION and automation initiatives offset most of the impact from the faster pace of residential and SurePost growth,” UPS underlined.
The International segment “produced strong volume growth across all major products” with revenue up 5.0% at a little over $3.33 billion, driven by an 8.4% jump in daily export shipments.
This produced an adjusted operating profit of $706 million, compared to $580 million a year earlier.
In the Supply Chain & Freight segment, revenue increased 2.6% over Q4 2015, to $2.7 billion.
An operating loss of $139 million was transformed into an adjusted operating profit of $179 million.
Commenting on the Q4 performance, Richard Peretz, UPS' chief financial officer, said:
“The investments in ORION and automation provided benefits during the quarter. However, bottom-line results were challenged by a shift in product mix and the continued softness in industrial production. Strong growth, combined with our network investments, provide UPS with great opportunities for many years to come.”
