Big Brown's Quarter Not So Bad ... Especially Compared With FedEx's Results
Saturday, July 25, 2009
- Analysis by: John Schulz
- Analysis of: UPS Earnings Decline 49 Percent as Downturn Cuts Demand | query.nytimes.com
- Source: www.glgroup.com
Summary: United Parcel Service posted second-quarter net income of $449 million on $10.8 billion in revenue. That was a 49 percent drop in earnings and a 17 percent drop in sales compared with year-ago figures. The company's chief financial offer, Kurt Kuehn, told analysts that the world's largest transport company is "cautious, frankly" about the rest of 2009's earnings. The company says it has no confidence that either demand or activity is going to pick up substantially" for the next several months.
Analysis: The people who run United Parcel Service are a tough bunch to satisfy. Nearly everybody else in the transport industry would die to earn $15 million net profit every day in the waning days of a recession. Not UPS.
Earnings slumped in the second quarter to "only" $445 million, a 49 percent drop from 2008 second-quarter earnings. At the company's mainstay, its U.S. domestic package segment which produces 63 percent of revenue, the unit's operating ratio was only a so-so 93. For UPS, this is like striking out three times in four at-bats.
Still, counting UPS's first-quarter earnings of $401 million, that means the company earning $846 million in the first half of the year -- not bad, considering the first quarter traditionally is slow, China imports have slowed, the worldwide recession has everyone thinking of ways to cut back and other economies. That was evident in the fact that UPS planes flew 11 percent fewer hours, saving some 14 million gallons of fuel in the second quarter. That was a major factor in UPS consuming 54 percent less fuel in the quarter for a total fuel bill of $539 million as oil prices collapsed in the quarter.
But what really is impressive, analysts' whining not withstanding, is UPS's performance vis-a-vis its major competitor, FedEx. While UPS was earning $846 million using a Teamsters work force, non-union FedEx actually lost $779 million for its corresponding six months.
Who says unionized workers can't be productive?
Hidden in the UPS earnings report was a glimmer of hope for its LTL operation and heavy freight operators in general.
While much of the LTL industry is grappling with double-digit percentage drops in volume, UPS's "supply chain and freight segment" (which includes UPS Freight, its LTL operator) posted a tonnage drop of "only" 6.9 percent in the second quarter. That fueled an operating ratio of 93, one of the better figures posted by anyone in the sector.
Of course, that is if one concludes that UPS Freight makes up the lion's share of UPS's "supply chain and freight segment." Nobody really knows. The company will not break out results from its LTL operation separately, so one really never knows. But unless UPS's supply chain third party logistics operation is going great guns, one presumes the bulk of this unit's performance was turned in by UPS Freight.
If that's the case, hat's off to Big Brown. It's one of the best performances of the quarter. Makes one wonder what they will do when the economy comes roaring back. It will come roaring back, right?
