UPS first-quarter profit tops estimates as revenue rises

FILE PHOTO: United Parcel Service air craft are being loaded with air containers in Louisville

(Reuters) – United Parcel Service Inc <UPS.N> reported a higher-than-expected quarterly net profit on Thursday as revenue grew across its domestic and international package delivery segments and as well as freight and supply chain operations.

Often seen as a bellwether of U.S. economic activity, UPS said revenue increased to $15.315 billion in the first quarter from $14.418 billion in the year-ago period, above expectations of $15.17 billion in revenue.

“We think of it as a good start, and we’re determined to have a good finish to the rest of the year,” Chief Executive Officer David Abney said in an interview with Reuters.

During the quarter, UPS invested to expand its new Saturday deliveries, with $35 million in increased costs from facility construction and the Saturday initiative.

Revenue at its domestic segment rose 5 percent to $9.535 billion from $9.084 billion. For international, revenue was also up 5 percent to $3.058 billion, and in supply chain and freight, it jumped 12.5 percent to $2.722 billion.

“Overall we believe this was a positive report for UPS,” including the company’s reiteration of full-year earnings forecast of between $5.80 and $6.10 per share, Cowen analysts wrote.

The company said the domestic business was affected by one-time costs of $50 million from a lag in a fuel surcharge, poor weather and a facility fire.

Abney said that he expected growth in revenue to outpace costs for the remainder of the year. UPS is also weighing surge pricing for some customers “if they need more capacity than we have,” Abney said.

The company now picks up and delivers ground packages on Saturday in 15 U.S. metropolitan areas, with plans to expand to more than 4,700 U.S. cities by the peak 2017 holiday season.

Operating expenses rose 7.4 percent to $13.531 billion from $12.595 billion in the year-ago quarter.

While e-commerce business has jumped, those packages often involve residences, which are costlier for UPS than businesses, because they involve fewer packages.

The Atlanta-based company posted first-quarter net income of $1.158 billion, or $1.32 per share, up 2.4 percent from $1.131 billion, or $1.27 per share, a year earlier.

Analysts expected $1.29 per share.

Shares rose 1 percent to $108.75 in mid-day trading amid a flat broader market.

(Reporting by Luciana Lopez in New York; Editing by Jeffrey Benkoe)