UPS posts solid first-quarter results, buoyed by change in U.S. ground pricing

UPS Inc., buoyed by changes in the pricing of domestic ground packages and the impact of across-the-board rate increases, yesterday reported solid first-quarter results, a welcome change for the company after a difficult holiday cycle.

UPS confirmed that it would impose a peak holiday season surcharge on residential deliveries and other areas where the company experiences a holiday-related traffic surge. UPS posted lower-than-expected fourth quarter 2014 results due mostly to cost increases in preparation for an influx in holiday traffic that didn't materialize to the extent the company had forecast.

UPS also announced that Chief Financial Officer Kurt Kuehn will retire after 38 years with the company. Kuehn, 60, will be succeeded by Richard Peretz, 53, currently UPS' corporate controller and treasurer. Peretz assumes the CFO role on July 1.

Atlanta-based UPS said first-quarter net income rose 13 percent to $1.03 billion, as it boosted profitability in its three reporting units: domestic package, international package, and supply chain and freight. Revenue rose 1.4 percent to $14 billion. Shipments on a companywide basis rose 2.8 percent from the year-earlier period.

Domestic package, the largest unit, reported a 3.8-percent revenue increase to $8.8 billion. Income before interest and taxes climbed 11 percent year-over-year. Domestic package operations benefited from what UPS CEO David P. Abney referred to in a statement as several "revenue management initiatives." The most well publicized program was a shift, effective Dec. 29, to pricing U.S. ground parcels measuring less than 3 cubic feet by their dimensions rather than their actual weight. The changes, which mostly affect shipments of lightweight, bulky items that cube out a van before they weigh out, are expected to generate hundreds of millions in additional revenue for UPS as those shipments are now re-rated at higher levels. Much of that new revenue is expected to be highly profitable, as the pricing change doesn't require costly modifications to the company's operational network.

Susan L. Rosenberg, a UPS spokeswoman, would not specify how much additional revenue was generated by the pricing change. The closest the company came to quantifying its impact was in reporting that domestic ground package yield—or revenue per shipment—in the quarter rose 3.1 percent from the year-earlier period. Total domestic revenue per package rose 1.2 percent. The total revenue includes shipments moved by air and through "SurePost," UPS' joint venture with the U.S. Postal Service.

Rosenberg noted that revenues and profits were also bolstered by a 4.9-percent tariff rate increase that took effect at the start of the year, as well as what she called "selective customer contract renewals." UPS, like all carriers, will shed accounts that are either unprofitable or whose profitability do not meet its standards.

UPS said that international package profit rose 14 percent to $498 million, and revenue climbed 2.4 percent to $3 billion. Supply chain segment revenue increased 1.3 percent to $2.2 billion, driven by growth in distribution and at UPS Freight, UPS' less-than-truckload (LTL) unit. Revenue growth was reduced due to the impacts of a stronger dollar against other major currencies and lower fuel surcharge revenue. Operating margin expanded to 6.9 percent, generating operating profit of $151 million, UPS said.

UPS Freight's revenue rose 2.3 percent due to better pricing, UPS said. LTL shipments per day increased 3.5 percwent over the prior-year period, UPS said.