- U.S. Domestic Daily Packages Increased
7.4%
- International Export Shipments Climb
9.1% per Day
- Supply Chain and Freight Segment
Operating Profit Grows 11%
- Full-Year Adjusted EPS Guidance Lowered
to a Range of $4.90 to $5.00
- Increases 2014 Expenditures for
Capacity and Peak Projects to $175M
- Recognizes Charge to Move Teamsters to
Defined Contribution Healthcare Plans
UPS® (NYSE:UPS) today announced adjusted diluted earnings per
share of $1.21 for the second quarter of 2014, a 7.1% improvement
over the prior year period. E-commerce shipping in the U.S. and
strong International Export growth contributed to a 7.2% increase
in global package shipments.
As previously announced, the company completed the transfer of
post-retirement liabilities for certain Teamster employees to
defined contribution healthcare plans and recorded an after-tax
charge of $665 million. On a reported basis, including this charge,
second quarter diluted earnings per share decreased 57% to
$0.49.
“The strong revenue growth this quarter is evidence that our
portfolio resonates with customers, with more choosing UPS as their
logistics provider,” said Scott Davis, UPS chairman and CEO. “As
we’ve said, 2014 is the year of investing for the customer. We are
providing new capabilities and expanding capacity to ensure UPS
meets the rapidly growing needs of the marketplace.”
Cash Flow
For the six months ended June 30, UPS generated $1.0 billion in
free cash flow. The company paid dividends of $1.2 billion, up 8.1%
per share over the prior year, and repurchased 13.7 million shares
for approximately $1.4 billion. Cash flow was reduced by the $2.3
billion payment made to transfer post-retirement healthcare
liabilities for certain employees.
U.S. Domestic Package
U.S. Domestic revenue increased 5.2% to $8.7 billion. Daily
package volume improved 7.4%, led by gains in UPS Ground and
Deferred up 8.1% and 5.4%, respectively. Adjusted operating profit
was $1.2 billion, up 3.0% over the prior year second quarter.
Second quarter results reflect additional operating costs
associated with rail service performance and investments made to
enhance operational capabilities and expand network capacity.
On a reported basis, operating profit declined 82% to $209
million as a result of the post-retirement liability transfer
previously mentioned.
Ground product growth was driven primarily by lightweight
e-commerce shipments. UPS SurePost shipments increased more than
60% over the prior year period and accounted for about half of the
total growth.
Total revenue per package declined 2.0% as base rates
improvements were offset by customer and product mix. The rapid
growth in UPS SurePost was the primary cause of the reduction,
while growth from large enterprise accounts also weighed on
yields.
International Package
International small package revenue climbed 6.2% or $190 million
to $3.3 billion. Strong growth in Export shipments drove revenue
expansion in the segment. Adjusted operating profit improved 4.4%
to $471 million.
On a reported basis, operating profit declined $7 million to
$444 million as a result of the post-retirement liability transfer
previously mentioned.
Export shipments increased 9.1% over the prior year, with growth
from all regions of the world. Europe led the way with daily
shipment gains of more than 13% while Asia was up more than 6%.
Non-U.S. Domestic products were 4.8% higher, driven by growth
throughout Europe.
Revenue per package on a currency-neutral basis was down 1.7%
from the prior year, driven by a 4% decline in Export yield.
Non-premium products continued to outpace premium as customers seek
low-cost alternatives. Double-digit gains in Pan-European shipments
also lowered revenue per package.
Rapid shipment growth in Europe caused UPS to purchase
additional short-term capacity at a premium from local service
partners. As a result, the company experienced increased delivery
and network expenses during the quarter.
Supply Chain &
Freight
Supply Chain and Freight revenue increased 6.5% to $2.3 billion,
resulting primarily from growth in the Forwarding and Distribution
business units. Adjusted operating profit was 11% higher at $176
million, and operating margin expanded 30 basis points to 7.5%.
On a reported basis, operating profit dropped $65 million, down
41% as a result of the post-retirement liability transfer
previously mentioned.
UPS Forwarding produced double-digit operating profit growth.
Strong improvements at North American Air Freight, Brokerage and
Ocean Freight were offset somewhat by a drop in International Air
Freight. Market pricing on the key Asia to U.S. lane continues to
put pressure on rates.
The Distribution business unit experienced high single-digit
revenue growth as a result of gains from Retail and Healthcare
customers. UPS continues to invest in expanding its global
distribution footprint.
UPS Freight revenue was 5.5% higher, driven by a 4.1% increase
in LTL revenue per hundredweight and tonnage gains of 1.6%.
Operating profit and margin improved from the prior year, as the
business unit continued to focus on profitable revenue
opportunities.
Outlook
The company announced plans to increase 2014 operating expense
for capacity and peak related projects to a total of $175 million.
Some of these expenditures include: expanded operations on the day
after Thanksgiving, accelerated deployment of route optimization
software (ORION), IT development, additional hub sorts and
temporary capacity. While all the projects will improve peak season
performance, many will provide benefits throughout the year.
“We are encouraged by the strong demand for UPS solutions around
the world,” said Kurt Kuehn, UPS chief financial officer. “As a
result of this accelerated growth and our preparation for peak
season, we are making investments in new capabilities and network
capacity to ensure we meet customer expectations.
“These initiatives will increase operating expense this year,
but will provide financial benefits for years to come,” Kuehn
continued. “As a result, we have lowered our expectations for
adjusted diluted earnings per share to be in a range of $4.90 to
$5.00, a 7-to-9% increase over 2013 adjusted results.”
About UPS
UPS (NYSE:UPS) is a global leader in logistics, offering a broad
range of solutions including the transportation of packages and
freight; the facilitation of international trade, and the
deployment of advanced technology to more efficiently manage the
world of business. Headquartered in Atlanta, UPS serves more than
220 countries and territories worldwide. The company can be found
on the Web at ups.com® and its corporate blog can be found at
blog.ups.com. To get UPS news direct, visit
pressroom.ups.com/RSS.
Editor’s Note:
UPS chairman and CEO Scott Davis and CFO Kurt Kuehn will lead a
discussion on second quarter results with investors and analysts
during a conference call at 8:30 a.m. ET today. That call is open
to listeners through a live Webcast. To access the call, go to
www.investors.ups.com and click on “Earnings Webcast.”
UPS routinely posts investor announcements on its web site --
www.investors.ups.com -- and encourages those interested in the
company to check there frequently.
We supplement the reporting of our financial information
determined under generally accepted accounting principles ("GAAP")
with certain non-GAAP financial measures, including, as applicable,
"as adjusted" operating profit, operating margin, pre-tax income,
net income and earnings per share. The equivalent measures
determined in accordance with GAAP are also referred to as
"reported" or "unadjusted.” We believe that these adjusted measures
provide meaningful information to assist investors and analysts in
understanding our financial results and assessing our prospects for
future performance. We believe these adjusted financial measures
are important indicators of our recurring operations because they
exclude items that may not be indicative of, or are unrelated to,
our core operating results, and provide a better baseline for
analyzing trends in our underlying businesses. Furthermore, we use
these adjusted financial measures to determine awards for our
management personnel under our incentive compensation plans.
We supplemented the presentation of our second quarter and
year-to-date 2014 and 2013 operating profit, operating margin,
pre-tax income, net income and earnings per share with similar
measures that excluded the impact of certain transactions. In the
second quarter of 2014, we recorded a $1.066 billion pre-tax charge
($665 million after-tax) related to the transfer of postretirement
benefit obligations to multiemployer healthcare plans for certain
employees employed under the Teamsters National Master Agreement.
The charge is allocated between the U.S. Domestic Package segment
($957 million), the International Package segment ($27 million) and
the Supply Chain & Freight segment ($82 million). In the first
quarter of 2013, we recorded transactions related to our attempted
acquisition of TNT Express N.V. These items included the impact of
(1) a pre-tax charge for the TNT termination fee and
transaction-related costs of $284 million ($177 million after-tax),
and (2) a pre-tax currency gain realized upon the liquidation of a
foreign subsidiary of $245 million ($213 million after-tax). We
believe these adjusted measures provide additional information that
better enables shareowners to focus on period-over-period operating
performance.
Because non-GAAP financial measures are not standardized, it may
not be possible to compare these financial measures with other
companies' non-GAAP financial measures having the same or similar
names. These adjusted financial measures should not be considered
in isolation or as a substitute for GAAP operating profit,
operating margin, net income and earnings per share, which are the
most directly comparable GAAP financial measures. These non-GAAP
financial measures reflect an additional way of viewing aspects of
our operations that, when viewed with our GAAP results and the
preceding reconciliations to corresponding GAAP financial measures,
provide a more complete understanding of our business. We strongly
encourage investors to review our financial statements and
publicly-filed reports in their entirety and not to rely on any
single financial measure.
Except for historical information contained herein, the
statements made in this release constitute forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934.
Such forward-looking statements, including statements regarding the
intent, belief or current expectations of UPS and its management
regarding the company's strategic directions, prospects and future
results, involve certain risks and uncertainties. Certain factors
may cause actual results to differ materially from those contained
in the forward-looking statements, including economic and other
conditions in the markets in which we operate, governmental
regulations, our competitive environment, negotiation and
ratification of labor contracts, strikes, work stoppages and
slowdowns, changes in aviation and motor fuel prices, cyclical and
seasonal fluctuations in our operating results, and other risks
discussed in the company's Form 10-K and other filings with the
Securities and Exchange Commission, which discussions are
incorporated herein by reference.
United Parcel Service, Inc.
Selected Financial Data - Second
Quarter
(unaudited)
Three Months Ended
June 30, Change 2014 2013
$ % (amounts in millions, except
per share data)
Statement of Income Data: Revenue: U.S.
Domestic Package $ 8,668 $ 8,241 $ 427 5.2 % International Package
3,252 3,062 190 6.2 % Supply Chain & Freight 2,348
2,204 144 6.5 %
Total revenue 14,268 13,507 761 5.6 % Operating expenses:
Compensation and benefits 8,375 6,981 1,394 20.0 % Other
5,146 4,784 362
7.6 % Total operating expenses 13,521 11,765 1,756 14.9 %
Operating profit: U.S. Domestic Package 209 1,132 (923 ) -81.5 %
International Package 444 451 (7 ) -1.6 % Supply Chain &
Freight 94 159 (65
) -40.9 % Total operating profit 747 1,742 (995 ) -57.1 %
Other income (expense): Investment income 25 3 22 N/A Interest
expense (89 ) (98 ) 9
-9.2 % Total other income (expense) (64 ) (95 ) 31 -32.6 %
Income before income taxes 683 1,647
(964 ) -58.5 % Income tax expense 229 576 (347 ) -60.2 %
Net income $ 454 $
1,071 $ (617 ) -57.6 % Net income as a
percentage of revenue 3.2 % 7.9 % Per share amounts: Basic
earnings per share $ 0.49 $ 1.14 $ (0.65 ) -57.0 % Diluted earnings
per share $ 0.49 $ 1.13 $ (0.64 ) -56.6 % Weighted-average
shares outstanding: Basic 918 943 (25 ) -2.7 % Diluted 927 952 (25
) -2.6 %
As adjusted income data: Operating
profit: U.S. Domestic Package (1) $ 1,166 $ 1,132 $ 34 3.0 %
International Package (1) 471 451 20 4.4 % Supply Chain &
Freight (1) 176 159
17 10.7 % Total operating profit (1) 1,813 1,742 71
4.1 % Income before income taxes (1) $ 1,749 $ 1,647 $ 102
6.2 % Net income (2) $ 1,119 $ 1,071 $ 48 4.5 % Basic
earnings per share (2) $ 1.22 $ 1.14 $ 0.08 7.0 % Diluted earnings
per share (2) $ 1.21 $ 1.13 $ 0.08 7.1 %
(1) Second quarter 2014 operating profit and consolidated income
before income taxes excludes $1.066 billion pre-tax charge
associated with transferring postretirement health and welfare
benefit obligations to multiemployer healthcare plans for certain
employees under the Teamsters National Master Agreement. The charge
is allocated between the U.S. Domestic Package segment ($957
million), the International Package segment ($27 million) and the
Supply Chain & Freight segment ($82 million).
(2) Second quarter 2014 net income and earnings per share
amounts exclude the $665 million after-tax charge of transferring
postretirement benefit obligations described in (1).
Certain prior year amounts have been reclassified to conform to
the current year presentation.
United Parcel Service, Inc.
Selected Operating Data - Second
Quarter
(unaudited)
Three Months Ended
June 30, Change 2014 2013
$/ # % Revenue (in
millions): U.S. Domestic Package: Next Day Air $ 1,636 $ 1,593
$ 43 2.7 % Deferred 825 798 27 3.4 % Ground 6,207
5,850 357 6.1 % Total U.S. Domestic
Package 8,668 8,241 427 5.2 % International Package: Domestic 692
645 47 7.3 % Export 2,408 2,264 144 6.4 % Cargo 152
153 (1 ) -0.7 % Total International Package
3,252 3,062 190 6.2 % Supply Chain & Freight: Forwarding and
Logistics 1,432 1,333 99 7.4 % Freight 771 731 40 5.5 % Other
145 140 5 3.6 % Total
Supply Chain & Freight 2,348 2,204
144 6.5 % Consolidated $ 14,268 $ 13,507
$ 761 5.6 % Consolidated volume (in millions)
1,079 1,006 73 7.2 % Operating weekdays 64 64 -
Average Daily Package Volume (in thousands): U.S. Domestic
Package: Next Day Air 1,233 1,213 20 1.6 % Deferred 988 937 51 5.4
% Ground 12,085 11,176 909
8.1 % Total U.S. Domestic Package 14,306 13,326 980 7.4 %
International Package: Domestic 1,496 1,427 69 4.8 % Export
1,057 969 88 9.1 % Total
International Package 2,553 2,396
157 6.6 % Consolidated 16,859
15,722 1,137 7.2 %
Average Revenue
Per Piece: U.S. Domestic Package: Next Day Air $ 20.73 $ 20.52
$ 0.21 1.0 % Deferred 13.05 13.31 (0.26 ) -2.0 % Ground 8.03 8.18
(0.15 ) -1.8 % Total U.S. Domestic Package 9.47 9.66 (0.19 ) -2.0 %
International Package: Domestic 7.23 7.06 0.17 2.4 % Export 35.60
36.51 (0.91 ) -2.5 % Total International Package 18.97 18.97 - 0.0
% Consolidated $ 10.91 $ 11.08 $ (0.17 ) -1.5 %
Certain prior year amounts have been reclassified to conform to
the current year presentation.
United Parcel Service, Inc.
Selected Financial Data - Year to
Date
(unaudited)
Six Months Ended
June 30, Change 2014 2013
$ % (amounts in millions, except
per share data)
Statement of Income Data: Revenue: U.S.
Domestic Package $ 17,156 $ 16,512 $ 644 3.9 % International
Package 6,379 6,040 339 5.6 % Supply Chain & Freight
4,512 4,389 123
2.8 % Total revenue 28,047 26,941 1,106 4.1 % Operating
expenses: Compensation and benefits 15,640 13,949 1,691 12.1 %
Other 10,147 9,670
477 4.9 % Total operating expenses 25,787 23,619 2,168 9.2 %
Operating profit: U.S. Domestic Package 1,136 2,217 (1,081 )
-48.8 % International Package 882 803 79 9.8 % Supply Chain &
Freight 242 302
(60 ) -19.9 % Total operating profit 2,260 3,322 (1,062 ) -32.0 %
Other income (expense): Investment income 25 8 17 N/A
Interest expense (179 ) (194 )
15 -7.7 % Total other income (expense) (154 ) (186 ) 32
-17.2 % Income before income
taxes 2,106 3,136 (1,030 ) -32.8 % Income tax expense 741
1,028 (287 ) -27.9 % Net income
$ 1,365 $ 2,108 $ (743 ) -35.2 %
Net income as a percentage of revenue 4.9 % 7.8 % Per share
amounts Basic earnings per share $ 1.48 $ 2.22 $ (0.74 ) -33.3 %
Diluted earnings per share $ 1.47 $ 2.21 $ (0.74 ) -33.5 %
Weighted-average shares outstanding Basic 920 948 (28 ) -3.0 %
Diluted 929 956 (27 ) -2.8 %
As adjusted income
data: Operating profit: U.S. Domestic Package (1) $ 2,093 $
2,217 $ (124 ) -5.6 % International Package (1) 909 842 67 8.0 %
Supply Chain & Freight 324 302
22 7.3 % Total operating profit (1)
3,326 3,361 (35 ) -1.0 % Income before income taxes (1) $
3,172 $ 3,175 $ (3 ) -0.1 % Net income (2) $ 2,030 $ 2,072 $ (42 )
-2.0 % Basic earnings per share (2) $ 2.21 $ 2.19 $ 0.02 0.9
% Diluted earnings per share (2) $ 2.19 $ 2.17 $ 0.02 0.9 %
(1) Second quarter 2014 operating profit and consolidated income
before income taxes excludes $1.066 billion pre-tax charge
associated with transferring postretirement health and welfare
benefit obligations to multiemployer healthcare plans for certain
employees under the Teamsters National Master Agreement. The charge
is allocated between the U.S. Domestic Package segment ($957
million), the International Package segment ($27 million) and the
Supply Chain & Freight segment ($82 million).
First quarter 2013 operating profit and consolidated income
before income taxes exclude the impact of the TNT termination
penalty of €200 million ($268 million) and transaction-related
expenses of $16 million. The combination of these items resulted in
a pre-tax charge of $284 million ($177 million after-tax).
Subsequent to the termination of the merger protocol, we liquidated
a foreign subsidiary resulting in a realized foreign currency gain
of $245 million ($213 million after-tax). Both transactions
impacted the International Package segment.
(2) Second quarter 2014 net income and earnings per share
amounts exclude the $665 million after-tax charge of transferring
postretirement benefit obligations described in (1).
First Quarter, 2013 net income and earnings per share amounts
excluded the after-tax impact of the International Package segment
transactions described in (1), which total a combined $36 million
after-tax gain.
Certain prior year amounts have been reclassified to conform to
the current year presentation.
United Parcel Service, Inc.
Selected Operating Data - Year to
Date
(unaudited)
Six Months Ended June
30, Change 2014 2013 $/
# % Revenue (in millions):
U.S. Domestic Package: Next Day Air $ 3,226 $ 3,159 $ 67 2.1 %
Deferred 1,680 1,610 70 4.3 % Ground 12,250
11,743 507 4.3 % Total U.S. Domestic Package
17,156 16,512 644 3.9 % International Package: Domestic 1,380 1,286
94 7.3 % Export 4,707 4,450 257 5.8 % Cargo 292
304 (12 ) -3.9 % Total International Package
6,379 6,040 339 5.6 % Supply Chain & Freight: Forwarding and
Logistics 2,765 2,693 72 2.7 % Freight 1,465 1,419 46 3.2 % Other
282 277 5 1.8 % Total
Supply Chain & Freight 4,512 4,389
123 2.8 % Consolidated $ 28,047 $ 26,941
$ 1,106 4.1 % Consolidated volume (in
millions) 2,150 2,028 122 6.0 % Operating weekdays 127 127 -
Average Daily Package Volume (in thousands): U.S.
Domestic Package: Next Day Air 1,242 1,224 18 1.5 % Deferred 1,036
978 58 5.9 % Ground 12,082 11,373
709 6.2 % Total U.S. Domestic Package 14,360 13,575
785 5.8 % International Package: Domestic 1,513 1,422 91 6.4 %
Export 1,056 974 82 8.4 %
Total International Package 2,569 2,396
173 7.2 % Consolidated 16,929
15,971 958 6.0 %
Average Revenue Per
Piece: U.S. Domestic Package: Next Day Air $ 20.45 $ 20.32 $
0.13 0.6 % Deferred 12.77 12.96 (0.19 ) -1.5 % Ground 7.98 8.13
(0.15 ) -1.8 % Total U.S. Domestic Package 9.41 9.58 (0.17 ) -1.8 %
International Package: Domestic 7.18 7.12 0.06 0.8 % Export 35.10
35.97 (0.87 ) -2.4 % Total International Package 18.66 18.85 (0.19
) -1.0 % Consolidated $ 10.81 $ 10.97 $ (0.16 ) -1.5
%
Certain prior year amounts have been reclassified to conform to
the current year presentation.
United Parcel Service, Inc.
Reconciliation of Free Cash
Flow
(unaudited)
Preliminary Year-to-Date (amounts in
millions)
June 30, Net cash from operations $ 1,842 Capital
expenditures (813 ) Proceeds from disposals of PP&E 10 Net
change in finance receivables 13 Other investing activities
(43 ) Free cash flow $ 1,009 Amounts are
subject to reclassification.
UPSAndy McGowan, Public Relations404-828-4663orJoe Wilkins,
Investor Relations404-828-8209
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