Inside UPS’s Solid 2Q17 Growth in Its US Domestic Segment
UPS’s US Domestic Package segment
Previously in this series, we presented a snapshot of United Parcel Service’s (UPS) overall revenues in 2Q17. In this article, we’ll review UPS’s US Domestic Package segment. Revenues for this segment jumped 8.1% to $9.7 billion in 2Q17 from $9.0 billion in 2Q16.
This segment is the largest contributor to UPS’s total revenues, accounting for more than 60% of its revenues. The US Domestic Package segment comprises UPS Next Day Air, UPS Deferred, and UPS Ground services.
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United Parcel Service’s 2Q17 revenues for its Domestic vertical rose due to solid e-commerce deliveries. The company noted that there had been a sharp rise in online shopping by US retail consumers.
US Domestic segment breakup
The UPS Ground Services subsegment contributed 70%–72% to the company’s US Domestic Package segment. In 2Q17, UPS’s Ground Services revenues grew 7.6% on a year-over-year basis.
However, the highest growth of 13.5% was reported in the Deferred subsegment, with revenues of $1.0 billion in 2Q17. The Next Day Air subsegment posted a revenue rise of 7.1% to achieve $1.8 billion in revenues in 2Q17.
Revenue per package and volumes
The average revenue per package in the US Domestic segment rose 3% to $9.72 per package. A higher fuel surcharge and an increase in the base price drove the average revenue per package.
Growth in e-commerce has been a key catalyst for UPS’s recent growth. In 2Q17, the US Domestic vertical’s average daily package volumes rose 4.9%, riding on the online shopping boom. From 14.9 million average daily pieces in 2Q16, United Parcel Service saw this metric grow to 15.7 million packages in 2Q17.
United Parcel Service is investing in its next-generation UPS Smart Global Logistics Network. With a substantial hub modernization program underway, the company expects good growth in the US Domestic vertical. The company plans to expand its hubs in Arizona, Kansas, and Indiana.
UPS anticipates a solid expansion in B2C deliveries in 2H17. Plus, it foresees its B2B deliveries to remain in positive territory. UPS anticipates revenue growth of 5%–7% in its US Domestic segment in 2017.
UPS is included in the portfolio holdings of the SPDR S&P Transportation ETF (XTN), which holds 2.6% in the company. UPS’s primary rival, FedEx (FDX), also comprises 2.6% of the portfolio holdings of XTN. The other major transportation stocks covered by XTN are Ryder System (R) and Expeditors International of Washington (EXPD), with respective weights of 2.8% and 2.9%.
In the next article, we’ll look at UPS’s International Package segment in 2Q17.