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UPS’s 4Q16 Domestic Revenues Rode on Ground Growth



UPS’s 4Q16 Domestic Package revenues

In the previous article, we took a look at United Parcel Service’s (UPS) overall revenues. Now, we’ll analyze UPS’s US Domestic Package segment.

The US Domestic Package segment consists of UPS Next Day Air, UPS Deferred, and UPS Ground services. This segment’s revenue grew 6.3% in 4Q16 on a year-over-year basis, and segmental revenues grew to $10.9 billion in 4Q16 from $10.3 billion in 4Q15.

Importantly, fuel surcharges played a positive role in 4Q16 for UPS. The fuel surcharge helped the company see 0.2% growth in its Domestic top line in 4Q16. For all packages larger than one cubic foot in the UPS Domestic segment, the company has changed the dimensional weight divisor from 166 to 139.

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Segmental breakup

UPS Domestic Package segment consists of Next Day Air, Deferred, and Ground business. The UPS Ground services within the US Domestic Package segment accounts for the majority share in the segment’s revenues. Domestic’s share in the segmental revenues remains in the 70%–72% range.

In 4Q16, UPS’s Ground Service revenues saw remarkable growth, rising 7.1% on a year-over-year basis—the highest among all three subsegments. The SurePost segment within the Ground sub-business witnessed 25%-plus growth in packages delivered.

Revenue per package and volumes

In 4Q16, UPS saw average revenues per package falling 0.3% in the US Domestic Package segment. Growth in e-commerce has been a key catalyst for UPS’s recent growth.

In 4Q16, the US Domestic Package segment’s average daily volumes rose 5%, led by demand in e-commerce. From 18.6 million average daily pieces in 4Q15, it grew to 19.5 million pieces in 4Q16.

Management insight

UPS expects average daily volumes to rise 3%–5% in 2017. Plus, the company anticipates revenue growth of 5%–7%. In the long term until 2019, UPS’s management targets revenue growth of 5%–6%. UPS also foresees more action on the Ground revenue front in 2017.

UPS is part of the SPDR S&P Transportation ETF (XTN), which holds 3.5% in the company. UPS’s major competitor, FedEx (FDX), make up 2.3% of the portfolio holdings of XTN. The other prominent transportation and logistics stocks included in the ETF are J.B. Hunt Transport Services (JBHT) and Expeditors International of Washington (EXPD).

Next, we’ll look at the 4Q16 performance of UPS’s International Package segment.


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