UPS released details regarding fourth quarter 2013 results. Average daily package volume increased 6.0 per cent, as total deliveries in December surged 20 per cent. Significantly higher than predicted volume and inclement weather contributed to excess operating costs in the U.S., negatively affecting results. “As the retail market shifts to a direct-to-consumer model, more and more companies are leveraging UPS solutions,” said Scott Davis, UPS Chairman and CEO. “As a result, we experienced an unprecedented increase in volume, exceeding even our most optimistic plans. However, “the increased volume put a strain on our network, causing delays. In response, UPS deployed additional people and equipment, placing a greater emphasis on service than cost,” Davis explained. “UPS will make the necessary investments and operational improvements to ensure we meet the needs of the marketplace.”
The company expects full-year diluted earnings per share to be within a range of $5.05 to $5.30, an increase of 11-to-16 per cent over 2013 adjusted results.
UPS delivered 20 million packages per day during the fourth quarter. Total shipments in 2013 increased to 4.3 billion, a 3.9 per cent improvement over 2012. During the holiday period, global daily deliveries exceeded expectations by surpassing 29 million packages on five days, with peak volume exceeding 31 million on December 23. Also during this period, UPS experienced 10 days with delivery volume that exceeded the company’s previous high.
U.S. Domestic Package
U.S. Domestic fourth quarter revenue improved 4.2 per cent to $9.3 billion. Daily package volume increased 5.6 per cent with Deferred and Ground leading the way, up 8.0 per cent and 5.8 per cent respectively. Total revenue per package declined 1.3 per cent, as lower fuel surcharges, changes in product and customer mix, as well as higher service refunds, contributed to the drop. Shippers continue to utilize the UPS portfolio, choosing lower cost over faster delivery, as evidenced by more than 30 per cent growth in UPS SurePost.
Operating profit totaled $1.2 billion as additional costs associated with a greater-than-expected surge in volume and weather led to a $178 million decline from the prior-year adjusted results. Increased compensation and benefit costs reflected the deployment of additional resources in an attempt to meet service commitments. During the quarter, UPS exceeded seasonal hiring targets by more than 30,000, deploying a total of 85,000 temporary employees. In addition, the company experienced significantly higher purchased transportation expenses.
International Package
International revenue increased 5.3 per cent to $3.4 billion on 8.8 per cent growth in daily package volume. UPS Export products rose 9.5 per cent per day, driven primarily by 13 per cent growth in Europe and significant growth in the Asia-to-Europe trade lane. Non-U.S. domestic products were up 8.2 per cent with strong growth in Poland, Italy, and Canada. During December, the segment achieved a peak volume day above four million pieces and exceeded last year’s high on 11 days.
Export yield declined 3.4 per cent on a currency neutral basis, as a result of lower fuel surcharges and customer preference for non-premium products. Double-digit gains in Pan-European shipments also lowered revenue per piece. Operating profit improved 7.6 per cent to $537 million. Operating margin expanded 30 basis points to 15.9 per cent, compared to last year’s adjusted results.
Supply Chain & Freight
Revenue in the segment fell 5.8 per cent to $2.3 billion, due to declines in the Freight Forwarding unit. Operating profit was flat compared to 2012 adjusted results, as improvements in Distribution offset declines in Forwarding and UPS Freight.
The Forwarding unit experienced a revenue decline resulting from decreased tonnage and revenue per kilo, in International Air Freight. The Ocean Freight business reported growth in shipments and operating margin expansion. Distribution revenue increased over the prior year period. The retail and healthcare sectors contributed to the improved results. Global footprint expanded during the year to 284 facilities, with more than 22 million square feet of space. UPS Freight LTL revenue increased 2.3 per cent over the prior year driven by LTL tonnage and pricing improvements.
Outlook
Capital expenditures are anticipated to be approximately $2.5 billion. This includes accelerated deployments in operational technologies and over $500 million of increased investments in capacity expansion and hub modernization. “While the year ended on a challenging note, we are confident in our ability to adapt and we expect much better results in 2014,” said Kurt Kuehn, UPS Chief Financial Officer. “UPS expects balanced profitability growth across all segments in a slightly better economic environment, resulting in full-year guidance of diluted earnings per share of $5.05 to $5.30, an 11-to-16 per cent increase over our 2013 adjusted results.”