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Inside UPS’s Second-Quarter Growth in Its US Domestic Segment

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US Domestic Package revenues

Previously, we looked at a snapshot of United Parcel Service’s (UPS) total second-quarter revenues. In this part, we’ll examine the company’s US Domestic Package segment. This segment is the largest contributor to UPS’s business, accounting for ~60.0% of its revenues. 

The US Domestic Package segment comprises UPS Next Day Air, UPS Deferred, and UPS Ground services. In the second quarter, the division’s revenues jumped 6.3% to $10.3 billion from $9.7 billion in the second quarter of 2017.

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Segment’s service-wise yields and volumes

The company’s UPS Next Day Air revenues grew 4.5% to $1.8 billion in the second quarter from $1.7 billion in the same period last year. Its average daily package volume rose 2.0% to 1.4 million from 1.3 million YoY (year-over-year). Its average revenue per piece rose 2.4% to $20.08 from $19.61 a year ago. 

The company’s UPS Deferred revenues expanded 5.9% to $1.08 billion in the second quarter from $1.02 billion in the same period last year. Its revenue growth was driven by an 8.2% rise in average revenue per piece. However, its average daily package volume of UPS Deferred declined 2.2% YoY in the second quarter.

Revenues from UPS Ground comprised ~72.0% of the UPS Domestic Package segment in the second quarter of 2018 and last year. UPS Ground’s second-quarter revenues jumped 6.8% to $7.4 billion from $6.9 billion in the comparable period last year. UPS Ground’s average daily package volumes rose 3.1% to 13.4 million from 13.0 million YoY. Ground’s average revenue per piece expanded 3.6% to $8.67 from $8.37 YoY.

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Management’s outlook

In the US Domestic Package segment, United Parcel Service plans to open its second-largest domestic ground hub in Atlanta. Based on full capacity, the ground hub is expected to sort more than 100,000 pieces per hour. This is expected to be more than double the hub-sorting capacity added by the logistics giant in 2017. The Atlanta hub’s operations are expected to begin in the middle of the third quarter.

UPS’s pricing actions in the segment along with advanced network projects are expected to drive efficiency, resulting in higher yields. The company’s forecast for the real US GDP’s annual growth remains at 3.0% for 2018. The company believes that the US tax reforms should boost consumer confidence and increase retail sales.

Investing in ETFs

If you’re bullish on transportation and logistics stocks, you may consider investing in the iShares Transportation Average ETF (IYT). United Parcel Service’s Class B stock makes up 6.54% of IYT’s portfolio. The ETF’s top holdings in descending order are FedEx (FDX) with 13.3% of its portfolio, Norfolk Southern (NSC) with 9.34% of its holdings, and Union Pacific (UNP) with 8.21% of its portfolio.

Keep reading for an update on UPS’s International Package segment’s second-quarter performance.

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