News / Strong second quarter, as UPS reports profit growth in all divisions

© Alexey Novikov

UPS has reported second-quarter growth across all divisions.

However, heightening global trade tension raises questions over whether the momentum can be maintained.

Consolidated profit soared 21% on 2018, to $3.5bn, on revenues of $18bn, up 3.4% year on year.

Chief executive David Abney said: “Our transformation initiatives are generating greater efficiencies and, when combined with our growth strategies, UPS achieved profit growth in all segments.

“We also announced a very extensive roll-out of new products and services for small- and medium-sized businesses, all designed to generate additional profitable growth.”

Domestic performance proved particularly strong in Q2 as US revenue hit $11bn, an increase of 7.7%, leading to a 29% bounce in operating profit, to $1.2bn.

Much of this success was due to growth in next-day air services, up more than 30%, “the strongest growth in more than a decade”, Mr Abney told investors.

“Our air market share growth is accelerating, and we are strengthening our industry leadership. UPS is in a unique position to enhance financial performance as we create new solutions that enable shippers of all sizes to meet accelerated customer delivery expectations.”

While Mr Abney said domestic growth was equal between air and land, analysts pointed to the evolution of its business with Amazon as key.

Cathy Morrow-Roberson told The Loadstar the company should be “proud” of Q2, but added she “suspected” a fair bit of the volume gain had come from the e-commerce giant.

“Even though FedEx Express ended its agreement with Amazon towards the end of June, Amazon could have already been shifting FedEx volumes to the UPS air network,” she said. “UPS’s newly announced cross-border economy service is another great idea targeted at SMEs, perhaps also for third-party sellers for such platforms as Amazon, Alibaba and eBay.

“It’s a lower-cost solution, but with a longer delivery window that could help save ‘free shipping’ for some businesses.”

The results were just one of several announcements made in quick succession, and included news that UPS was seeking Federal Aviation Authority approval for a drone subsidiary.

Initially hostile to the idea of drones, analyst Ms Morrow-Roberson said she was now “eating her words”, and “loved” the drone idea.

“It’s not going to be profit-leading, but it brings an alternative last-mile delivery solution to hospitals and cuts down on package delivery cars – reduced labour and cost,” she added. “Also, UPS had to respond to FedEx’s announcement of offering seven-day delivery service.”

However, there are concerns over whether UPS will replicate the Q2 success, given the current trade tensions rippling across the world. But Mr Abney sounded a note of optimism, having met with trade officials from both China and the US.

“UPS is using the flexibility of our network to help our customers optimise their supply chains and take advantage of continued growth opportunities.”

Ms Morrow-Roberson said UPS appeared to be “finding opportunities outside the traditional tradelanes as well as within its own shores”.

She noted: “The UK and Europe have also been strong for UPS, but with Brexit concerns, UK is not as strong. But demand within Europe remains good.”