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UPS’s International Package Segment: Fewer Operating Days

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UPS’s International Package segment in 1Q16

Previously, we looked at United Parcel Service’s (UPS) US Domestic Package segment. Now let’s look at its International Package segment. This segment includes domestic, export, air cargo, and other subsegments. For 1Q16, the segment’s revenue declined 1.9% to $2.9 billion.

The slump in 1Q16 revenues was mainly due to fewer local operating days. The timing of the Easter holiday largely impacted the total operating days in the quarter. However, the higher demand from Asia and Europe into the United States offset the lower US exports. This supported the segment’s revenues in 1Q16.

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Revenue per package declines

UPS implemented base rates increases across all geographical areas globally. However, this was offset by lower fuel surcharges, which had a 2.0% impact on revenue per package growth. For 1Q16, revenue per package declined marginally by 0.5% to $16.30. Currency-neutral revenue per piece increased 1.6%.

Volumes also fell

UPS’s International Package volumes in 1Q16 declined 2% from 2.7 million average daily packages in 1Q15 to 2.6 million packages in 1Q16 on a year-over-year basis. The company’s export volume within the International Package segment declined due to revenue management actions initiated by UPS in mid-2015. These actions also affected the non-U.S. Domestic Package products volumes.

Outlook

UPS expects international revenues to increase 2%–4% in 2016. Revenues in the first half of 2016 are expected to be dragged down due to currency fluctuations and lower fuel surcharges. UPS’s long-term outlook until 2019 includes a targeted revenue growth of 6%–9% for the International Package segment and a focused operating profit of 9%–12%.

UPS makes up 3.8% of the holdings of the Industrial Select Sector SPDR ETF (XLI). This ETF also invests 2.4% in FedEx (FDX), UPS’s prime rival. Other major logistics companies in XLI are CSX (CSX), Union Pacific (UNP), and C.H. Robinson Worldwide (CHRW).

In the next part of this series, we’ll examine UPS’s Supply Chain & Freight segment. We’ll also look at management’s insights about the Coyote Logistics acquisition.

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