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Coyote Acquisition Drives UPS’s Supply Chain Revenues in 4Q16

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Feb. 6 2017, Updated 9:06 a.m. ET

UPS’s Supply Chain segment revenues in 4Q16

Previously in this series, we looked at United Parcel Service’s (UPS) International segment revenues. Here, we’ll consider UPS’s Supply Chain and Freight segment. The major divisions in this segment include Forwarding and Logistics, Freight, and Other.

In 4Q16, UPS’s International segment’s revenue rose 2.6% to ~$2.7 billion from ~$2.6 billion in 4Q15.

The Coyote Logistics acquisition helped UPS’s Supply Chain and Freight revenues grow in 4Q16. The Forwarding and Logistics division accounts for highest revenue share of the Supply Chain and Freight segment revenues. The Forwarding and Freight subsegments remained under pressure due to overcapacity in the market.

The good news was the implementation of the tonnage increase in the Freight business for the first time in more than a year. The Air Freight business witnessed mid-single-digit growth in tonnage. The Ocean Freight line also saw increased tonnage in 4Q16.

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LTL revenues per hundredweight and volumes

For 4Q16, the less-than-truckload (or LTL) revenues per LTL hundredweight decreased 0.1% to $23.40. However, the LTL shipments rose 0.3% in 4Q16 to 2.4 million.

LTL gross weight grew 2.1% in 4Q16. UPS is focusing on serving higher-yielding middle-market customers to grow the LTL revenues per hundredweight.

Supply Chain segment outlook

UPS expects soft market conditions in the Air Freight Forwarding and UPS Freight markets. However, the overall Supply Chain and Freight segment is expected to improve in 2017 due to certain pricing actions and better market conditions in 2H17. This segment’s revenue is expected to increase 8%–10%, including Coyote Logistics. In the long run until 2019, the company plans to target an annual revenue growth rate of 5%–7%.

UPS comprises ~2.6% of the SPDR S&P Transportation ETF (XTN). UPS’s major competitor, FedEx (FDX), makes up 2.8% of the portfolio holdings of XTN. The other prominent transportation and logistics stocks included in the ETF include J.B. Hunt Transport Services (JBHT) and Expeditors International of Washington (EXPD).

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