UPS integration problems affects results
published: cw 44, 2006 in Logistics & ShippingUPS third quarter figures show strong underlying growth in its core business and fairly healthy profits, but problems have emerged in its Menlo Forwarding acquisition.
The headline figures show revenue growth compared with Q3 last year was 11% up to $11.66billion with operating profit increasing by $80m to $1.58billion. This was on volume increases in packages handled of over 5%.
The core businesses of US package and International package both grew. US package revenue grew by just under $400m compared to Q3 2005, to $7.4bn. This was on growth of over 3% in volumes and higher margins per packet. International Package grew even more impressively, with volumes up 19% and revenue up over 15% over the year at $2.25bn. Operating margins were higher at 17.2%. However these impressive figures at International Package have been buoyed by the acquisition of LYNX Express in the UK.
Operating profits in the business were also complicated by a more favourable tax environment and an $87m potential charge over the case brought by its employees over breach of minimum wage laws.
The figures for the Supply Chain and Freight Division were a lot less impressive. In contrast to recent previous quarters not only did this segment not grow, it actually made a loss of $19m, compared a profit of $70m in Q3 2005. Revenue held-up well, increasing over the year by $410m to $2.01bn. But it appears that UPS has hit operational problems with both Menlo Forwarding, which it bought two years ago, and its Less than Trailer Load road carrier which it has acquired since. In UPS’ analyst call CEO Mike Eskew, and the CFO Scott Davies, admitted that the Freight Forwarding business had lost customers, including “a couple of large customers”, apparently due to poor service. Both blamed the failure on integration problems and this is what has triggered the 1200 job losses in the division announced on 5th October 2006.
These are mixed results for UPS. The underlying growth in the core business is strong and the company continues to tap into the strong international economy enabling it to improve both revenue and profits. But the problems at its ‘Supply Chain and Freight’ division is a blow to its corporate strategy.
Source: Transport Intelligence / UPS
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