International Operations a Concern for UPS

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United Parcel Service (NYSE: UPS  ) , the world's largest package delivery company, recently reported first-quarter numbers that disappointed investors. Mid-single-digit growth figures on its top and bottom lines, as well as across segments, seemed to have the word "mediocre" written all over them. Take a look at a few concerns that have cropped up for this courier king.

Quick take on the numbers
UPS generated $13.14 billion in revenue, 4.4% higher than last year. Its net income improved by 6% from the prior-year quarter, rising to $970 million. This translated into earnings of $1.00 per share, which fell short of analyst estimates by $0.02.

International issues
International markets are not as rosy as they once were. U.S. demand for Asian products has slipped, China's economic growth has slowed down, and Europe shows no signs of coming out of recession. All in all, volatility seems to be the name of the game in certain regions of the world.

Companies like UPS are surely dealing with uncertain demand. This was evidenced by a mere 2.3% growth in revenue for the company's international packaging business. Unimpressive international volumes hit the company's revenue per package, which resulted in a fall in margins. Industry competitor FedEx (NYSE: FDX  ) faced a similar situation as it complained of low international volumes last year.

Silver lining
On the domestic front, things were only slightly better. UPS' bulk revenue contributor -- U.S. domestic sales -- witnessed a 6.2% rise, helped by better-than-expected volumes from an increase in e-commerce and a rise in prices to cover fuel costs. However, as customers preferred slow and cheap shipping options, driven by e-commerce, margins remained weak in such shipping.

An interesting feature which emerged during the quarter was intracontinent shipping. Even though international shipping slumped, trade and commerce within the continents picked up. UPS' shipping within European countries grew more than 5% and a similar situation prevailed in Asia. Investors should note that this is also where its recent acquisition of TNT Express will be useful in tapping internal demand in Europe.

The Foolish bottom line
UPS' international packaging business looks threatened as the global economy weakens. However, the company seems confident of its domestic sales. The company expects sales in this region to grow by at least 3.5% this year, as compared to its earlier forecast of 2%. For the whole year, UPS expects to earn $4.75 to $5.00 per share, which is in line with analyst expectations of $4.89 per share.

While UPS might not witness the rampant growth expected around the world, there are three other companies solidly poised for international success. Read more about these American companies in our free report "3 American Companies Set to Dominate the World."

Navjot Kaur does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of FedEx. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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10/26/2016 4:00 PM
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