United Parcel Service Inc. posted second-quarter earnings that beat analysts’ estimates, buoyed by a new pricing system and operations outside the U.S.
The shares jumped the most in almost four years following the news. UPS also said it would reach the upper end of its profit forecast this year.
UPS and FedEx Corp. have been looking to Europe to pick up the slack in growth at home. UPS has said it plans to spend about $2 billion over five years on the continent, where a weaker euro is driving spending. A shift to charging customers for packages based on size not just weight, is also bearing fruit.
UPS said pricing initiatives are pulling base rates higher across all regions. Excluding fuel, which has reduced surcharges, revenue per parcel was “slightly positive” in the quarter, Chief Financial Officer Richard Peretz said on a conference call.
The shift in shipping prices was designed to discourage online retailers from sending small, lightweight items in large boxes, taking up more space in trucks and raising expenses.
The cost to ship a box of paper towels weighing three pounds and measuring 17 x 17 x 17 inches could jump to more than $20 from $8 under the new pricing rule, Kevin Sterling, a BB&T Capital Markets analyst estimated when it was announced last year.
Earnings excluding some items were $1.35 a share, UPS said Tuesday. That exceeded the average estimate of $1.26 in a Bloomberg survey. Sales of $14.1 billion trailed projections for $14.5 billion. The stock rose as much as 5 percent, its biggest intraday jump since August 2011. It was trading up 3.5 percent at $98.44 at at 10:00 a.m. in New York.
Atlanta-based UPS said it expects the U.S. economy to grow 2.3 percent in 2015, less than the 3.1 percent increase it forecast in January.
Europe, where economists predict an economic expansion of 1.5 percent this year, up from 0.8 percent last year, should help offsett the domestic weakness, UPS said.
“The strong momentum in our international segment is expected to continue and gives us confidence in achieving the upper end of our guidance range,” Chief Executive Officer David Abney said in an earnings statement.
UPS reiterated its full-year forecast for earnings per share of $5.05 to $5.30.
Operating profits in UPS’s international business rose by 17 percent over the adjusted results for a year earlier. The company cited higher volumes, changes in pricing and improvements in its international network. A revenue gain in the unit was driven by an 8.5 percent increase in intra-Europe shipments.
Volumes also climbed last quarter. UPS moved 2.1 percent more packages than a year earlier, for a total of 1.1 billion. Deferred air and international export shipments led the increase.
As UPS’s peak season approaches, the company said it’s expanding its Access Point network to 100 cities to help alleviate some of the holiday shipping crunch.
Access Point locations are local businesses like neighborhood grocery stores, delis and dry cleaners with extended evening and weekend hours where UPS can drop off packages for people to pick up at their convenience. This allows UPS to avoid multiple attempts to deliver items when residents aren’t at home to receive them.
The service is already available in New York, Chicago, San Francisco and a few others, and will be expanded to cities including Dallas, Denver, Miami and Seattle. UPS plans to have 8,000 locations in the U.S. and 22,000 worldwide by December.
Ken Wood is the founder of LJM Consultants. LJM helps clients negotiate “Best in Class” UPS/FedEx agreements. LJM was recently named the “best parcel auditing company in America” and was also inducted into Inc. Magazine’s Top 500/5000 fastest growing companies in America for 2013. To learn how LJM Consultants can help your company get the parcel contract you deserve, call 631-844-9500 or email kenwood@myLJM.com.