During its second quarter ended June 30, 2013, UPS generated total revenues of $13.51 billion, up 1.2 per cent compared to the second quarter of 2012 as daily International package volume improved 5 per cent and U.S. Domestic grew 1.9 per cent. Diluted earnings per share were $1.13, down slightly compared to the prior-year period.
“Market conditions and shipper preferences clearly impacted our freight forwarding and International business,” said Scott Davis, UPS’s Chairman and CEO. “UPS is adapting to these conditions to ensure we deliver a solid second half.”
For the three months ended June 30, 2013, UPS delivered 15.7 million packages per day, an increase of 2.3 per cent over the prior-year period.
For the six months ended June 30, UPS generated $2.5 billion in free cash flow after capital expenditures of $990 million.
U.S. Domestic second quarter revenue improved to $8.24 billion, up 2.3 per cent. Total U.S. Domestic revenue per piece was up 0.3 per cent, as base rate improvements were offset by significantly lower fuel surcharges, decreased average weight and changes in mix. Daily package volume improved 1.9 per cent compared to the same period last year, driven by residential shipments from e-commerce customers. Contraction in letter volume led to the 1.5 per cent decline in Next Day Air®. Additionally, UPS volume growth was delayed by ongoing labor negotiations.
On June 25th, UPS received majority approval from the Teamsters on the National Master Agreement. For the local supplements that remain open, and UPS Freight, the company and the Teamsters have agreed to contract extensions.
International daily package volume improved 5.0 per cent and revenue increased 1.6 per cent to $3.06 billion. Daily Export shipments increased 5.0 per cent, with Europe and Asia leading the way. Non-U.S. Domestic volume was up 5.1 per cent compared to the prior year period. Customers continue to trade down to slower moving solutions resulting in a 3.4 per cent decline in export revenue per piece, on a currency neutral basis. Lower fuel surcharges and customer mix also pressured yields.
Revenue in Supply Chain and Freight was $2.20 billion, down 3.2 per cent. Operating profit dropped to $159 million with an operating margin of 7.2 per cent. The revenue and operating profit declines were primarily due to the Forwarding business unit. Forwarding results remained under pressure as tonnage declined and yields were negatively impacted by lower demand in trans-Pacific trade lanes. Lower operating costs could not offset these headwinds.
UPS Freight revenue improved, however, operating profit and margin declined slightly, due to increases in compensation and benefit expense.
During the quarter UPS opened new dedicated healthcare distribution facilities in Louisville, Kentucky, and Hangzhou, China. These state-of-the-art buildings bring UPS total healthcare space to more than 6 million square feet worldwide.
“UPS second quarter results were below our expectations as a result of disappointing performance in freight forwarding and a slight miss in International package,” said Kurt Kuehn, UPS Chief Financial Officer. “Going forward, UPS is focused both on our long-term strategy and adapting to changing market conditions.”
“Looking toward the back half of the year, although global economic expectations have been lowered, UPS expects growth in adjusted diluted earnings per share of 4-13 per cent over the same period last year,” Kuehn concluded.
UPS expects 2013 adjusted diluted earnings per share to be in a range of $4.65 to $4.85, compared to $4.53 the prior year.