Winter weather hits UPS operating profits

UPS took a $200m hit in operating profits for the first quarter of 2014 due to severe snowfalls in the US which saw business to business shipments slow as “manufacturers, distributors and retailers closed shop”.
But the US-based international parcels giant reported signs of recovery and faster growth in Europe while economic expansion in Asia remained steady.
Scott Davis, UPS chief executive, said: “We pride ourselves on being an all-weather company, but the intensity of this year’s winter storm season produced challenging conditions.
“Buildings across UPS network were force to cease operations somewhere in the US on 34 days during the quarter. These weather events not only led to increased cost but also influenced UPS product and customer mix contributing to lower yields.
“We saw business to business shipments slow as manufacturers, distributors and retailers closed shop.”
One positive outcome of the harsh winter weather was that snowbound US consumers turned to the internet for online purchases.
Average daily shipments in the US climbed 4.2 per cent, driven primarily by large e-commerce shippers. Despite a 2.6% revenue increase over prior-year period to $8.5bn, the domestic segment generated $927m in operating profit, down $158m due to the impact of severe winter weather.
International operating profit climbed 12 per cent in the first quarter and international daily volume jumped 7.9% on “strong European growth”.
To support strong intra-European growth and intercontinental trade, UPS completed the expansion of its Cologne air hub in Germany, with a $200m investment that increased facility capacity by 70 per cent.
Non-US domestic deliveries increased 8.1%, driven by growth in Europe and Canada. Poland led the European countries with more than 20 per cent growth, while Germany and the UK contributed strong gains.
International air freight growth in shipments and tonnage were offset by lower revenue per pound (lb) and ocean freight and brokerage showed both improved revenue and operating profit.
Davis added: “While we are yet to see the first quarter US GDP numbers, it’s safe to say that growth will be slower due to weather. The good news is that spring has arrived and we expect the pace of US economic growth to pick up as 2014 progresses.
“In Europe, the economy is showing signs of recovery and faster growth. Yet as the situation in Ukraine deteriorates, that pace may slow.
“Economic expansion in Asia has remained steady with mid single digit growth and in Latin America expectations call for increased merchandise exports. The economic benefit of global trade is clearly visible in both established and emerging economies.”