UPS announced its Q1 Earnings this week amid good news and bad news. "The first quarter marked a good start to the year, as we executed against our strategy and generated solid performance across our business," said David Abney, UPS chairman and CEO. "Our Transformation initiatives are enhancing revenue quality and creating network efficiencies that will increase our long-term earnings power. We are on a path to take advantage of growth opportunities and enhance our future performance." This initial assessment of the future sounds good but let’s see what happened. 

UPS's operating profit in its U.S. domestic business, its biggest, fell 12 percent to $666 million in the first quarter ended March 31. Several issues affected the giant parcel carrier’s decline in first-quarter profit. On the good news front, their U.S. Domestic business continued a positive trend, with business-to-business volume once again up this quarter. There was healthy growth of 2.5% over Q 1 2018 for the U.S. Domestic business. This was led by growth in Ground revenue per piece of 2.9%. The average daily volume for air services grew nearly 8%, driven by high demand for faster delivery options.

UPS indicated that weather lowered U.S. profit by about $80M or $0.07 on an earnings-per-share basis. However, even if you eliminate the 7 cents per share due to severe storms in the U.S. Northeast and Midwest and other items, UPS earned $1.39 per share, missing analysts' average estimate of $1.41. It should be noted that there was one less operating day in the quarter than a year ago and Easter fell in mid-April this year.

Supply Chain and Freight products produced strong profit growth in the quarter. The segment also expanded operating margins, driven by strong cost-management initiatives and the flexibility of the network to adapt to changing market conditions.

The company is betting heavily on benefits from investments in its global network. UPS feels these projects will create efficiencies across the enterprise and produce higher-quality revenue growth in the future. They feel these investments have already begun to be reflected in new automated hubs that contributed to improvements in operational measures including productivity gains and slower growth in unit costs. 

Shippers should expect to see increased pressure to increase revenue and margins for the balance of the year as the company reaffirmed adjusted Earnings Per Share estimates. Some of the improved performance will be generated from strategies and initiatives that are driving additional network efficiency and flexibility. Shippers should expect to find contract negotiations to be intense based on pressure to meet the carrier’s performance objectives. B2B shippers should continue to find their business more attractive as parcel carriers are seeking more destination density throughout their network.