Severe winter weather may have kept many consumers from shopping at stores in the first quarter, but it didn’t freeze their computer keyboards. Business-to-consumer e-commerce was “robust” in the quarter, UPS said, despite a series of storms that cost the economy billions of dollars and UPS almost $200 million in lost profit.
“Snowbound consumers took to the Internet to make their purchases,” CEO Scott Davis told Wall Street analysts during an April 24 conference call. Those online orders drove UPS domestic daily package volume up 4.2 percent and ground volume, dominated by UPS SurePost, up 4.4 percent, the company said in its earnings statement.
Overall, UPS, the second-ranked global transportation and logistics company, increased revenue 2.6 percent to $13.8 billion in the quarter, while net profit fell 12.2 percent from a year ago to $911 million. UPS domestic package revenue increased 2.6 percent overall to $8.5 billion in the quarter, but operating profit in the U.S., where UPS is the No. 1 trucking company, dropped almost 15 percent to $927 million.
More online shoppers chose lightweight, deferred shipping options, UPS said. Deferred daily package volume in the U.S. increased 6.3 percent year-over-year, while U.S. Next Day Air daily volume rose 1.5 percent. “B2C shipping contributed broadly to gains across all products, while B2B improved slightly primarily from e-commerce, including omni-channel customers,” said CFO Kurt Kuehn.
All that online shopping pushed residential deliveries to 44 percent of UPS’s total deliveries in the quarter, Kuehn said during the earnings call, transcribed by Seeking Alpha.
“We’re going to continue to see strong residential growth, and I think you’ll see it across all of our residential products, whether its air, ground or SurePost, as retailers are out there offering a wide variety of services to their customers,” said Alan Gershenhorn, senior vice president of worldwide sales, strategy and marketing.
UPS SurePost — the company’s economy delivery option, which uses the U.S. Postal Service for the last leg of delivery — saw volume increase more than 50 percent, a sign more retailers are offering the service to their web and mobile customers. “B2B volume was clearly reduced by weather events, whereas in contrast B2C growth remained robust, as consumers were able to continue shopping online,” Kuehn told investment analysts.
Unfortunately, UPS couldn’t deliver products as easily or quickly as consumers ordered them. Its drivers had to do that the old-fashioned way — when weather permitted.
“We pride ourselves on being an all-weather company, but the intensity of this year’s winter storm season produced challenging conditions,” Davis said. UPS experienced significant network disruptions on 34 out of 63 working days in the quarter. Delayed trailers pushed labor hours up 5.4 percent and led to a 20 percent increase in overtime.
Strong international demand helped compensate for some of company’s domestic woes. International package revenue rose 5 percent year-over-year to $3.1 billion and overseas operating profit jumped 12 percent to $438 million. International daily package volume rose 7.9 percent thanks to strong European demand. Europe led in exports and intra-European exports rose more than 15 percent, UPS said. Domestic package volumes outside the U.S. rose more than 8 percent, with the biggest gains in Germany, Poland, the United Kingdom and Canada. More than half of UPS’s international revenue now comes from Europe, Kuehn said. Supply chain re-engineering by major customers accounted for some of the international growth. “Customers are trying to optimize their networks, so the zones move, the distribution patterns move,” said Jim Barber, senior vice president, UPS International.
Supply Chain and Freight revenue dropped 1 percent to $2.2 billion, but operating profit increased 3.5 percent to $148 million. Less-than-truckload subsidiary UPS Freight, No. 4 in JOC’s ranking of the Top 25 LTL Carriers, increased LTL revenue 1.2 percent to $603 million, thanks to a 3.1 percent increase in yield. LTL shipments and tonnage dropped 1.2 and 1.9 percent.