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UPS’s US Domestic Segment’s 2Q16 Revenue Rides on B2C Growth

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Aug. 3 2016, Updated 9:09 a.m. ET

UPS’s US Domestic segment’s 2Q16 revenue

Earlier, we took a snapshot of United Parcel Service’s (UPS) overall revenue. Now, we’ll analyze UPS’s US Domestic Package segment. This segment consists of the UPS Next Day Air, UPS Deferred, and UPS Ground divisions.

The US Domestic Package segment’s revenue rose by 2.4% in 2Q16 on a year-over-year basis. The segment’s revenue rose to $9.0 billion in 2Q16 compared to $8.8 billion in 2Q15.

The segment’s UPS Ground division accounts for 72% of its revenue. Ground revenue rose by 2.2% to $6.5 billion in 2Q16. It was followed by Next Day Air services, whose revenue rose by 2.9% to settle at $1.6 billion in 2Q16.

Faster delivery options from online retailers backed by consumer demand drove UPS’s US Domestic segment’s revenue in 2Q16. Its B2C (business to consumer) expansion outpaced its B2B (business to business) expansion by more than five to one.

However, lower fuel surcharges and product mix negatively impacted the segment’s revenue despite higher base rates.

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US Domestic segment’s volumes

Growth in e-commerce has been a catalyst for UPS’s growth recently. In 2Q16, the US Domestic Package segment’s average daily volumes rose by 2.5% due to its Next Day Air division, in which volumes rose by 5.6%. Demand in e-commerce also fueled growth in average daily volumes.

Volumes rose from 14.5 million average daily pieces in 2Q15 to 14.9 million average daily pieces in 2Q16. In the quarter, UPS saw its average revenue per piece fall by 0.1% in the US Domestic Package segment.

Management’s insight

UPS’s management expects its average daily volumes to rise by 2%–4% in 2016, leading to a revenue rise of 4%–6%. In the long term until 2019, UPS’s management is targeting revenue growth of 5%–6%. According to UPS’s projections, the percentage of B2C packages in the US Domestic Packages segment are expected to rise to 51% in 2019 compared to nearly 46% in 2015.

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 next article, we’ll discuss UPS’s International Package segment and management’s outlook for it.

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