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Home » UPS, Old Dominion stand tall as both post strong quarterly results
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UPS, Old Dominion stand tall as both post strong quarterly results

July 27, 2017
DC Velocity Staff
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Two proxies for the transportation industry, UPS Inc. and Old Dominion Freight Line Inc., posted second-quarter results today that, for now, confirm their continued leadership status.

Atlanta-based UPS posted a 7.7-percent year-over-year gain in the quarter, finishing with a top line of $15.75 billion. Operating profit rose 8.7 percent in the quarter, to $2.2 billion, driven by strong gains in the U.S. domestic package business—a segment where solid profits have been tough to come by—as well as its supply chain and freight operations, which include less-than-truckload (LTL) carrier UPS Freight, freight broker Coyote Logistics, and UPS' third-party logistics (3PL) business.

Domestic revenue rose about 8 percent, to $9.7 billion, while domestic profits climbed more than 13 percent, to $1.39 billion. E-commerce growth drove demand for UPS ground parcel and air delivery products, with next-day and second-day air shipments rising 6.4 and 11 percent, respectively. Per-piece revenue climbed 3 percent due to higher rates and a bump from increased fuel-surcharge revenue.

International revenue rose 2.8 percent, and increased 8 percent after adjusting for currency fluctuations—in particular the U.S. dollar's strength in the quarter. Export volumes rose 12 percent, led by gains in Europe and Asia, UPS said. Adjusting for currency changes, operating profit rose $84 million, to $697 million. Supply chain and freight revenue rose 12 percent, while operating profit climbed 24 percent year over year. The profit figures included an undefined one-time benefit.

UPS executives told analysts today that they expect similar results for the balance of the year, which includes the all-important peak holiday season. In the analyst call, company executives did not discuss the company's strategy to handle the upcoming peak surge other than to address its already-announced plans to levy its first-ever surcharge on holiday deliveries.

Meanwhile, Thomasville, N.C.-based Old Dominion, viewed by many as the most well-managed less-than-truckload (LTL) carrier in the country, reported an 11.2-percent increase in second-quarter revenue compared to the year-earlier period, and a 20-percent rise in quarterly operating income. Revenue and earnings-per-share results were Old Dominion's best in more than two years, the company said.

The carrier's operating ratio—the ratio of revenues over expenses, a key metric of operating efficiency—hit 80.9 percent, a company record and a level rarely seen in trucking. The company said it posted solid gains in freight density and yield, leverage that enabled its operating costs, as a percentage of revenue, to decline on a year-over-year basis.

The second-quarter gains were driven by a 6.1-percent increase in daily tonnage. Revenue for every hundred pounds moved, an important measure of profitable tonnage, rose 5.1 percent, excluding the impact of higher fuel surcharges.

David S. Congdon, Old Dominion's vice chairman and CEO, attributed the strong results in part to an improving U.S. economy and partly to the company's execution. For example, the company posted a 99-percent on-time delivery rate and a record-low 0.2-percent cargo claims ratio, it said.

Despite the strong results, equity values in both companies dropped sharply in today's trading. UPS' stock price fell $4.50 a share, to $107.79, while Old Dominion's stock dropped $4 a share, to $96.40. Elevated equity valuations may have had a role in today's decline, as traders may have followed the old Wall Street adage of "selling on the news."

In particular, the price of Old Dominion's equity has been on a tear during the last 12 months, up more than 38 percent.

Transportation Trucking Less-than-Truckload Parcel & Postal Carriers
KEYWORDS Old Dominion Freight Line UPS
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