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Bad Weather Nips UPS’ Quarterly Operating Profit

Inclement weather was the culprit for UPS reporting a $106m decline in operating profit for first quarter 2014.

According to the company, UPS experienced service disruptions in its network on more than half of the operating days in the quarter. Not only were there disruptions but the weather was said to have influenced the product and customer mix as well – good and bad – B2B volumes declined but B2C growth remained strong.
 
By division, US domestic package revenue increased 2.6% to $8.5bn. Operating profit declined $158m to $927 million due to the weather. While revenue per package declined 1.5% from the previous year due to changes in customer and product mix, as well as lower fuel surcharges, average daily volume increased 4.2%, due to UPS SurePost and UPS Second Day Air.
 
Improving economic conditions in Europe resulted in the international segment to report a 5.0% increase in revenue and operating profit to increase 12.0% to $438 million. Non-U.S. domestic volume jumped more than 8% led by Germany, Poland, The UK and Canada. Export volume was 7.7% higher with Germany, UK, France and Spain noting increases up more than 17.0%. Meanwhile Asian markets such as Hong Kong and Japan experienced export growth of more than 6.0%.
 
Although revenue declined 1.0%, the supply chain and freight group noted operating profit increased 3.5% to $148m. According to UPS, in its forwarding group, shipments and tonnage increased while market conditions drove revenue per kilo lower. However, ocean forwarding and brokerage businesses noted increases in revenue and improved profitability. Meanwhile, the distribution group noted retail and healthcare sectors produced mid-single digit revenue growth and operating profit improved 10.0%.
 
UPS was not the only company to be negatively impacted by the weather. In fact, the entire U.S. freight and transportation industry seems to have taken a hit from severe weather this year. Last month, FedEx said weather impacted its operating income by about $125 million.
 
Even though US domestic package disappointed because of bad weather, it was good to see the gains within the international package division. Also,within the supply chain and freight group, while ocean forwarding and brokerage appear to be doing well with increases in revenue and profit there was no mention of air freight forwarding which may be indicative of the overall fragile airfreight market.
 
According to UPS, the outlook for the rest of the year remains promising. “During the quarter, the momentum of the underlying business was masked by the disruption of inclement weather,” said Kurt Kuehn, UPS chief financial officer. “We are encouraged by the positive trends in our business and expect the remainder of the year to perform as we originally guided.