UPS lifts earnings despite fuel hike
ATLANTA: UPS said record fuel prices were having little impact on demand for package delivery services, as the company reported a 7.0 per cent increase in third-quarter net profits.
Like most freight companies, UPS has passed on high fuel prices to its customers through surcharges.
But Scott Davis, chief financial officer, said there was no widespread evidence of customers cutting back on shipments or changing their mode of transportation. "At this level it seems the customer is willing to pay [the surcharge] and it has not dramatically changed their shipping modes."
Mr Davis said the US economy remained steady, in spite of the impact of recent hurricanes, and predicted continued growth in 2006, albeit at a slower pace than this year. "We're all amazed at how resilient the US economy is. It just takes these natural disasters and keeps chugging along."
Package delivery companies are viewed as an economic bellwether because of their central role in corporate supply chains.
Surging global trade and solid domestic growth helped UPS lift net profits to $953m, or 86 cents a share, compared with $890m, or 78 cents, in the same period last year. Revenues were up nearly 18 per cent at $10.55bn, from $8.95bn last year. The results were in line with expectations.
"We have tremendous momentum right now in the US and around the world and we see it continuing," said Mike Eskew, chief executive. Mr Davis said the company should meet its full-year earnings growth target to 18-20 per cent and forecast an additional 11-16 per cent lift next year. International package shipments remained the strongest source of growth, with volume up 11.2 per cent, led by a 34 per cent increase in exports from China.
However, analysts were most pleased by UPS's improving domestic growth following last year's sluggish performance in the US. Domestic package volume, which still accounts for more than two-thirds of total sales, was up 4.0 per cent, with the strongest growth coming from next-day air delivery -- a category dominated by FedEx.
UPS has cut costs and increased its focus on lucrative small and medium-sized customers in the US.
Revenues from supply chain and freight services more than doubled to $1.61m, following the acquisitions of Overnite, a US trucking company, and Menlo, a global freight forwarder.
FT Syndication Service