UPS Inc. on April 14 delivered compelling evidence of a broadening economic recovery in the United States and abroad when it pre-announced first-quarter results significantly better than anyone, including the company, had expected.
The nation's largest transportation company, known for its conservative outlook, had cautioned investors weeks ago that the first quarter would be its most difficult period of 2010 before giving way to accelerating growth as the year progressed. The April 14 announcement blew away the caution. UPS said earnings per share would be 33 percent above the very weak prior-year period. Revenue grew by 7 percent year over year, paced by 18-percent gains in international package sales and a 14-percent gain in its supply chain and freight business. The company did not disclose revenue results for its core domestic package business, and company spokesman Norman Black declined to comment beyond a company press release issued that day.
Volume growth was also strong. Export volumes from all countries in the UPS system rose 9 percent year over year, while so-called non-U.S. domestic traffic—goods moving within a country outside the United States—increased 24 percent, both signs that economies besides America's were recovering. Domestic volumes rose less than 1 percent, the first year-over-year increase in more than two years, UPS said.
Kurt Kuehn, UPS's CFO, acknowledged the company was pleasantly surprised by the results. "We expected the first quarter to be the most challenging of 2010 as the economic recovery gathered steam throughout the year. As it turned out, revenue was stronger than we expected due to international volume gains, increased yields in the U.S. and growth in [freight] forwarding and logistics," he said in a statement.
And in an indication UPS expects its momentum to continue, the company significantly raised its earnings projections for the full year. UPS will officially release its first-quarter results on April 27.
UPS and arch-rival FedEx Corp. are considered proxies of U.S. and global economic growth because of their influence in the supply chains of so many businesses. UPS, for example, ships the equivalent of 6 percent of U.S. gross domestic product. Analysts were impressed by the results. Calling the announcement "a real surprise," analysts at JPMorgan Chase said UPS's solid international results should soon be supported by growing strength in the long-moribund domestic package category as the impact of cost controls and increased operating leverage start to become apparent.
Jon A. Langenfeld, analyst at Robert W. Baird in Milwaukee, Wis., said the first-quarter results "support our thesis that UPS is firmly positioned to benefit from improving volumes and drive meaningful operating leverage during this upcycle."
Wreaths Across America
