Transformation vs. China Will Define UPS’s 2018 After 8th Straight Profitability Decline — Panjiva
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Transformation vs. China Will Define UPS’s 2018 After 8th Straight Profitability Decline

Corp - Forwarders 157 Earnings 365 Global 722 Mode - Seaborne 1273

United Parcel Service (UPS) has reported second quarter revenues that improved by 9.5% on a year earlier. That continued a seven quarter run of growth and beating analysts’ expectations by 0.7% points according to S&P Global Market Intelligence figures. A significant part of the expansion has been driven by improving average pricing with average revenues per piece across all product lines up by 4.6%.

UPS MOSTLY UP INLINE WITH ITS PEERS

Chart compares revenues for freight forwarders. Total includes Ceva, CH Robinson, K+N, Nippon Express, Panalpina, Fedex, Deutsche Post, JB Hunt and XPO Logistics. Calculations based on company financial statements and average analysts’ forecasts gathered from S&P Global Market Intelligence on July 17 2018.   Source: Panjiva

The latter may have been partly a function of taking a more conservative approach to market share than in prior quarters. As outlined in Panjiva research of July 12 that can be a seen in a 5.5% decline in U.S. seaborne, inbound volumes in the second quarter vs. a market average of 5.0% growth.

One challenge going into the peak shipping season will be the impact of tariffs on China-U.S. trade volumes. Management have not seen an impact so far, which isn’t a surprise given duties were only applied from July 6 and relate more to industrial products. The widening of tariffs going into the peak season could yet lead to earlier shipments, particularly given China accounts for 64% of UPS’s U.S. seaborne inbound volumes, Panjiva data shows.

UPS DEPENDENCY ON CHINA FOR U.S. INBOUND SHIPMENTS AMONG THE HIGHEST

Chart segments U.S. seaborne imports by NVOCC SCAC and shipment origin for the 12 months to June 30, denominated in number of shipments.   Source: Panjiva

Yet, the improved pricing was not enough to drive higher profitability. EBITDA (earnings before interest, tax, depreciation and amortization) of $2.58 billion for the quarter was 3.0% lower than expected. The EBITDA margin meanwhile of 14.8% was below both expectations (15.3%) and a year earlier (17.4%).

That’s the eighth straight quarter of declining profitability on a year-over-year basis and indicates a mixture of the strength of competition as well as a variety of non-competitive costs (for example pension expenses) that has beset the company.

Indeed management have indicated profitability is “not currently where we wanted to be” and will present a transformation program in September. It is worth noting though that the company has near the best margins in the forwarders sector though.

NEARLY THE BEST, BUT NOT BETTER

Chart compares EBITDA margin (earnings before interest, tax, depreciation and amortization) for freight forwarders. Total includes Ceva, CH Robinson, K+N, Nippon Express, Panalpina, Fedex, Deutsche Post, JB Hunt and XPO Logistics. Calculations based on company financial statements and average analysts’ forecasts gathered from S&P Global Market Intelligence on June 20 2018.   Source: Panjiva

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