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Coyote Drives UPS’s Supply Chain and Freight Revenue in 2Q16

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UPS’s Supply Chain and Freight revenue in 2Q16

Earlier, we discussed United Parcel Service’s (UPS) International segment’s revenue. In this article, we’ll consider UPS’s Supply Chain and Freight segment.

The major divisions in this segment include Forwarding and Logistics, Freight, and Other. In 2Q16, this segment’s revenue rose by 13.2% to $2.5 billion from $2.2 billion in 2Q15.

The inclusion of Coyote Logistics in early 2015 helped UPS’s Supply Chain & Freight segment’s revenue to rise by double digits in 2Q16.

The Forwarding & Logistics division accounts for the highest revenue share of the Supply Chain & Freight segment’s revenue. This division recorded double-digit growth of 25.8%, the highest among all three of the segment’s divisions in 2Q16.

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LTL revenue per hundredweight and volumes

In 2Q16, the company’s LTL (less-than-truckload) revenue per LTL hundredweight rose by 2.9%, from $22.81 in 2Q15 to $23.47 in 2Q16.

However, LTL shipments fell from 2.7 million in 1Q15 to 2.5 million in 2Q16. The company’s LTL gross weight hauled in millions of pounds fell by 9.9% in 2Q16. New truckload brokerage revenue compensated for the falls in tonnage in international forwarding and the US LTL business.

Outlook

UPS expects soft market conditions in the Air Freight Forwarding and UPS Freight segments. The forwarding business unit’s revenue is expected to rise by 4% in the long run. The Distribution and Freight business units are projected to see revenue rises of 5%–8% and 4%–6%, respectively.

UPS’s overall Supply Chain & Freight segment’s revenue is expected to rise by 15%–20%, led by the inclusion of Coyote Logistics’ results for the full year. In the long run leading up to 2019, the company is targeting an annual revenue growth rate of 5%–7% for the segment.

UPS makes up part of the SPDR S&P Transportation ETF (XTN). This ETF holds 2.6% in the company. UPS’s major competitor FedEx (FDX) makes up 2.5% of the portfolio holdings of XTN. Other prominent transportation and logistics stocks included in the ETF are J.B. Hunt Transport Services (JBHT) and Expeditors International of Washington (EXPD).

In the coming article, we’ll focus on UPS’s operating margins and its management’s insights for 2016 and beyond.

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