UPS Profits Rise on E-Commerce Growth -- Update

By Laura Stevens 

United Parcel Service Inc. on Friday reported a 3.2% increase in profit fueled in part by e-commerce growth, but the delivery giant cautioned that a weaker industrial environment will continue to be a drag.

Revenue increased 3.8% to $14.63 billion for the second quarter, while profit rose to $1.27 billion. UPS forecast its e-commerce business will grow faster than expected through the end of the year, as U.S. consumers continue to show strength.

"In our domestic side, we've expanded our margins even though the economy isn't as good as we would like for it to be," Chief Executive David Abney said in an interview. "But we have realized that the key to us is not what the economy may hand to us or may blow against us, but it's a lot more about staying focused on our strategies."

The results show that the company's efforts to improve profitability in the higher-cost e-commerce delivery segment are starting to pay off. But the strength in e-commerce and consumer spending was countered by slowing exports due to the greenback's strength and an inventory overhang among industrial customers, which is hurting business-to-business shipments, UPS' traditional stronghold.

Delivering e-commerce packages tend to be more expensive due to the scattered nature of the residential deliveries and UPS has undertaken several initiatives to produce better returns. It has raised prices across the board, with specific increases targeted at bigger and bulkier packages that fill up trucks and take more time to deliver. The company also has been working to pool more consumer deliveries, adding retail locations and lockers for pickups.

Its proprietary-routing software, Orion, has helped it to shave minutes and miles off drivers' routes. Second-quarter delivery stops grew by more than 3%, but the company reduced its miles driven by a fraction of a percent and kept the cost per piece down. UPS plans to expand the roll out of the technology so that it is ready for the all-important holiday season.

Operating profits in the company's U.S. business increased 2.7% to $1.23 billion.

Mr. Abney deflected a question from an analyst on the threat of Amazon.com Inc. in taking on more of its own logistics operations and deliveries. He said UPS' large customer base means it will always have more deliveries to more addresses, which in turn allows it to have lower prices and better reliability.

Cross-border and export shipment growth in Europe helped fuel the company's international results. Shipments from Europe to the U.S. alone grew at a double-digit pace in the quarter. Operating profit at its international division grew 11.1% to $613 million on nearly flat revenues. UPS has been expanding in Europe and other international markets, and executives said that they would be keeping an eye out for potential acquisitions in emerging markets.

The company maintained its earnings guidance for the year but cautioned that the third quarter would face difficult comparisons due in part to one less operating day.

Write to Laura Stevens at [e-mail]

(END) Dow Jones Newswires

July 29, 2016 13:54 ET (17:54 GMT)

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