Shipper United Parcel Service Inc and railroad Union Pacific Corp topped Wall Street’s expectations when they reported quarterly results as both captured increases in domestic shipping volume.
The numbers posted by the world’s largest package delivery company and the United States’ No. 1 railroad reflect a slightly more optimistic U.S. economic environment, but consumers have yet to participate fully in the recovery, executives at UPS and Union Pacific said.
“Clearly, this is a business-led recovery,” CEO Scott Davis said during a conference call with analysts. “You’ll see industrial production grow faster than GDP. That’s driven by the manufacturing side.”
Atlanta-based UPS’s profits soared 90 percent to $845 million, or 84 cents per share, compared with a profit of $445 million, or 44 cents per share, a year ago, besting analysts’ projections of 77 cents per share.
Revenue per piece rose 6 percent in UPS’s domestic package segment as the company pushed price increases across to their customers, said BB&T Capital Markets analyst Likewise, Union Pacific said it may post strong gains through the second half of the year.
The pace of the economic recovery is still uncertain, Union Pacific Chairman Jim Young said, but added the railroad is planning to handle continued volume growth throughout the rest of 2010 and into 2011.
“We still have significant upside. Although there is still uncertainty around the state of the economic recovery, we are encouraged by the current demand levels,” Young said.
For the second quarter, Omaha-based Union Pacific said net income totaled $711 million, or $1.40 per share, up from $465 million, or 92 cents per share, a year earlier.
Business volumes, as measured by total revenue carloads, grew 18 percent from a year earlier, during the recession.
Automotive group freight revenue doubled in the second quarter while industrial products rose 30 percent.
Both companies see slow, steady growth ahead in the United States.
“We don’t see things slowing down domestically,” UPS Chief Financial Officer Kurt Kuehn told Reuters. “This is not a typical recovery, when you turn a corner and all of a sudden things are going in one direction.”
UPS’s international segment generated 23 percent of its $12.2 billion in second-quarter revenue. The shipper’s international business has thrived in recent quarters on robust volume out of Asia, with China “leading the pack,” Kuehn said.
This time, export volume was up 15 percent overall and 40 percent in Asia.
The company added 66 segments to its China-U.S. flight schedule during the quarter, Kuehn said.
“They are capturing the volume growth, particularly on the international side,” BB&T’s Sterling said.
UPS’s results also seemed to be unaffected by the uncertainty surrounding the viability of various European governments due to sovereign debt crises in such countries as Greece.
“People were concerned about Europe, but they certainly aren’t seeing any impact on freight volumes,” said Stifel Nicolaus analyst David Ross.
About half of UPS’s international revenue flows from Europe. It has far more exposure to Europe than rival FedEx. (Reuters)