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UPS exceeds forecasts for the second quarter, international operating profit jumps 17%

UPS (United Parcel Service) (UPS Airlines) (Atlanta and Louisville) today announced second quarter 2015 diluted earnings per share of $1.35, a 12% increase over adjusted results for the same period last year. All three segments improved operating profit and margin, led by International and Supply Chain and Freight performance.

The company continued:

Highlights:

All Segments Improve Profitability and Expand Margins
International Operating Profit Jumps 17%
Export Shipments up 5.5% with Strong Intra-Europe Growth
Supply Chain and Freight Operating Profit Climbs 18%
Revenue Growth Dampened by Changes in Currency and Fuel Prices
2015 EPS Growth at Higher End of 6%-to-12% Guidance Range

Currency exchange rates and lower fuel surcharges reduced total reported revenue growth. Total revenue declined 1.2% from the same quarter last year to $14.1 billion. Pricing initiatives continue to drive base rates higher.

“During the quarter, UPS continued to invest for the future by expanding capacity and launching new capabilities that provide higher value to customers,” said David Abney, UPS chief executive officer. “The strong momentum in our International segment is expected to continue and gives us confidence in achieving the upper end of our guidance range.”

On a reported basis, operating profit increased $1.2 billion, and diluted earnings per share was up $0.86. In the second quarter of 2014, UPS reported diluted earnings per share of $0.49, which included a $665 million after-tax charge for the transfer of certain post-retirement liabilities to defined contribution healthcare plans.

Total company shipments increased 2.1% over the second quarter last year to 1.1 billion packages, led by U.S. Deferred Air products and International Export shipments.
Cash Flow

For the six months ended June 30, UPS generated $3.3 billion in free cash flow. The company paid dividends of $1.3 billion, an increase of 9.0% per share over the prior year. UPS also repurchased 13.5 million shares for approximately $1.4 billion.

U.S. Domestic Package

U.S. Domestic revenue increased $140 million over the second quarter last year to $8.8 billion. Shipment growth was led by Deferred Air products up 15% and UPS SurePost which increased more than 8%. Total daily deliveries grew 1.8% due to a slower pace of B2C (business-to-consumer) growth.

Operating profit was $1.2 billion, up $35 million or 3.0% over prior-year adjusted results. Operating margin expanded to 13.6% as improved pricing and productivity offset higher benefit costs.

On a reported basis, operating profit increased $992 million after the transfer of certain post-retirement liabilities to defined contribution healthcare plans, which occurred in the second quarter of last year.

Continued improvements in base rates were offset by lower fuel surcharges. Revenue per package was flat, as changes in fuel surcharges dropped reported yield by almost 300 basis points.

International Package

Currency-adjusted International revenue was up 1.5% over the same period last year. UPS daily Export shipments increased 5.5%, primarily due to an 8.5% increase in intra-Europe shipments. The strong dollar drove U.S. imports higher, while U.S. exports were down slightly.

International operating profit increased $81 million, or 17% over the adjusted results for the same period in 2014. Network improvements, volume growth and pricing initiatives all contributed to expanded operating margin and increased profitability. The segment experienced growth from middle-market accounts and improved premium product sales.

On a reported basis, operating profit increased $108 million after the transfer of certain post-retirement liabilities to defined contribution healthcare plans in the second quarter of last year.

Underlying base rates were up across all regions, though revenue per package decreased 2.4% on a currency-neutral basis. Lower fuel surcharges reduced reported revenue per package by about 350 basis points.

Supply Chain & Freight

Supply Chain & Freight revenue declined 4.5% to $2.2 billion, due to Forwarding revenue management initiatives, currency and lower fuel surcharges at UPS Freight. Operating profits improved $31 million, or 18% over the adjusted results for the same quarter 2014, driven by gains in Forwarding.

On a reported basis, operating profit increased $113 million after the transfer of certain post-retirement liabilities to defined contribution healthcare plans that occurred in the second quarter of 2014.

UPS Forwarding operating profit and margin expanded as the business unit continued to implement a disciplined pricing strategy across key trade lanes. The unit also benefited from improved market conditions and customer mix. Forwarding tonnage and revenue dropped during the quarter, primarily due to revenue management initiatives and the impact of currency fluctuations.

Distribution revenue increased at a mid-single digit growth rate. Growth in Mail services, Healthcare and Aerospace industries contributed to revenue improvements.

UPS Freight revenue declined 2.5% due to lower fuel surcharges and a drop in tonnage driven by changes in customer mix and slowing market growth. LTL (less-than-truckload) revenue per hundredweight growth remained positive, with a 1.4% gain.

Outlook

“The second quarter results reflect continuing gains in our International business,” said Richard Peretz, UPS chief financial officer. “Even though the U.S. economy appears to be growing at a slower pace, our global portfolio and performance reinforces our expectations to attain the higher-end of the guidance range.”

The company’s guidance for 2015 full-year diluted earnings per share is $5.05 to $5.30, a 6% to 12% increase over adjusted 2014 results.

UPS aircraft slide show:

UPS reports 1Q earnings per share were up 14%

United Parcel Service-UPS (UPS Airlines) (Atlanta and Louisville) reported first quarter net income of $1.03 billion.

Here is the full financial announcement:

UPS announced first quarter 2015 diluted earnings per share of $1.12, a 14% increase over the prior year period. Operating profit increased 11% to $1.7 billion, with all three segments contributing. Revenue management actions and robust International shipment growth drove the operating profit improvement.

Total reported revenue of $14.0 billion was up 1.4% over the same quarter last year. Revenue growth was 3.6% after adjusting for foreign currency changes.

“The first quarter results were favorably impacted by our continued investments and revenue management initiatives,” said David Abney, UPS chief executive officer. “These actions delivered high value to our customers and shareowners. We are on track to achieve the company’s long-term financial targets.”

Total company shipments increased 2.8% to 1.1 billion packages, led by European export growth of 9.4%.

Cash Flow

For the three months ended March 31, UPS generated $2.4 billion in free cash flow. The company paid dividends of $636 million, an increase of 9.0% per share over the prior year. The company also repurchased more than 6.7 million shares for approximately $680 million.
U.S. Domestic Package

U.S. Domestic first quarter revenue increased 3.8% to $8.8 billion. Daily package volume improved 2.4%, lifted by growth in Deferred Air, up 12% and UPS SurePost, up 7.0%. Shipment growth rates slowed, as the company chose not to pursue some lower-yielding contract renewals.

Total revenue per package was up 1.3% primarily due to UPS Ground yield increasing 3.1%. Base rate improvements more than offset an approximately 200 basis point drag from lower fuel surcharges. The expansion of dim-weight pricing, implemented last December 29, also contributed to higher yields.

Operating profit increased to $1.0 billion, an 11% improvement from the prior-year period. Operating margin expanded 70 basis points, driven by productivity gains.
International Package

International operating profit was $498 million, up 14% over the prior-year period. Volume growth, pricing initiatives and lower fuel expense all contributed to improved profitability. Operating margin expanded 280 basis points to 16.8%.

Total International revenue of $3.0 billion, increased 2.4% for the quarter on a currency-neutral basis, compared to the reported decline of 5.0%. Lower fuel surcharges also weighed on revenue growth.

Worldwide Export yield contracted 5.2% on a currency-neutral basis, with the majority of the decline due to an approximately 300 basis point reduction in fuel surcharge revenue. Product mix changes and stronger intra-regional shipment growth also contributed to the lower yield.
Export shipments jumped 6.7% led by European growth of 9.4%. In Europe, UPS Export volume has grown at an annual rate of approximately 9% over the past 10 years.

Supply Chain & Freight

Revenue in the segment increased 1.3% to $2.2 billion, driven by growth in Distribution and UPS Freight. Revenue growth was lowered by currency exchange rates and reduced fuel surcharge revenue. Operating margin expanded to 6.9%, generating operating profit of $151 million.

Although Forwarding revenue declined due to currency changes and revenue management actions, profitability was improved over the same period last year. Congestion at the West Coast port terminals created challenges for many Ocean Freight customers. The flexibility of the UPS portfolio allowed customers to accelerate their ocean freight or reroute to non-affected ports.

The Distribution business delivered solid top-line growth as more customers in the Healthcare and Retail industries realized the benefits of UPS supply-chain expertise. Operating profit and margin was limited by continued investments in technology and infrastructure.

UPS Freight revenue was up 2.3% resulting from gains in LTL and Ground Freight Pricing products. Lower fuel surcharges weighed on the revenue growth rate. LTL shipments per day increased 3.5% over the prior-year period.

Outlook

“Solid performance across all three business segments was led by positive momentum in International, gains from revenue management and productivity improvements in the U.S.,” said Kurt Kuehn, UPS chief financial officer. “We remain on plan to meet our guidance for full-year 2015 diluted earnings per share of $5.05 to $5.30, a 6%-to-12% increase over our 2014 adjusted results.”

Copyright Photo: Michael B. Ing/AirlinersGallery.com. Boeing 767-34AF N346UP (msn 37868) approaches the runway at Anchorage.

UPS Airlines aircraft slide show:

UPS produces an operating profit of $1.5 billion in the first quarter, down $106 million due to harsh winter weather

UPS (United Parcel Service) (UPS Airlines) (Atlanta) today released first quarter 2014 results. Diluted earnings per share totaled $0.98, a $0.06 decline from first quarter 2013 adjusted results. Operating profit for the quarter was $1.5 billion, down $106 million from the prior-year’s adjusted results. Unusually harsh weather weighed on operating profit by approximately $200 million, due to increased expenses and slower revenue growth. Average daily shipments in the U.S. climbed 4.2% driven primarily by large e-commerce shippers using lightweight deferred shipping solutions.

The International segment operating margin expanded to 14.0% on daily volume growth of 7.9%. Supply Chain and Freight experienced improved operating profit and margin expansion.

For the first quarter of 2013, UPS reported diluted earnings per share of $1.08, which includes $36 million in after-tax gains related to the attempted acquisition of TNT.

“Much of the U.S. economy was negatively affected by the severe weather conditions in the first quarter, resulting in lower UPS operating results versus the prior year,” said Scott Davis, UPS chairman and CEO. “International and the Supply Chain and Freight segment benefitted from positive momentum during the quarter as customers utilized the strategic investments made by UPS to strengthen our portfolio.”

Cash Flow

For the three months ended March 31, UPS generated $1.9 billion in free cash flow. The company paid dividends of $596 million, up 8.1% per share over the prior year, and repurchased 6.8 million shares for approximately $660 million.

U.S. Domestic Package

U.S. Domestic revenue increased 2.6% over the prior-year period, to $8.5 billion. Daily volume improved 4.2%, led by UPS SurePost and UPS Second Day Air.

The segment generated $927 million in operating profit, down $158 million compared to the prior year, due to the impact of severe winter weather. The company experienced lost revenue and additional cost as a result of significant network disruptions on more than half of the operating days during the quarter. Overtime wages, purchased transportation and snow removal costs increased substantially over the prior year. Operating margin contracted 220 basis points to 10.9%.

Revenue per package declined 1.5% from the previous year due to changes in customer and product mix, as well as lower fuel surcharges. Product mix continues to be impacted by the rapid increase of UPS SurePost. More e-commerce retailers are choosing this product to serve their value-conscious customers.
International Package

The International segment revenue improved 5.0% and produced operating profit of $438 million, 12% more than the prior-year adjusted results. Operating margin expanded to 14% driven by improved network efficiency and in-country leverage.

On a reported basis, the segment recorded operating profit growth of 24% more than the prior-year result of $352 million. This reflects the operating profit impact of a $39 million net charge in 2013, related to the attempted acquisition of TNT.

Export shipments climbed 7.7% driven by 15% growth in Europe and modest gains in Asia and the Americas. Transborder shipments in Europe continue to expand rapidly as customers migrate to Pan-European distribution using UPS solutions.

To support strong Intra-European growth and intercontinental trade, the company announced the completed expansion of its Cologne, Germany, air hub. This $200 million investment increased facility capacity by 70%.
Non-U.S. Domestic deliveries increased 8.1%, driven by growth in Europe and Canada. Poland led the European countries with more than 20% growth, while Germany and the U.K. contributed strong gains.

Average revenue per package declined 2.1% due to product mix changes as non-premium Export products jumped almost 13%, overshadowing improved growth in premium products.

Supply Chain & Freight

Supply Chain and Freight operating profit increased 3.5% to $148 million. Operating margin expanded 30 basis points to 6.8%, driven by gains in the Forwarding and Distribution units.

The Forwarding business delivered improved operating profit and margin gains during the quarter as the unit adapted to market changes. International Air Freight growth in shipments and tonnage were offset by lower revenue per pound. Ocean Freight and Brokerage showed both improved revenue and operating profit.
Gains from retail and healthcare customers drove higher revenue growth in the Distribution business unit.

Operating profit improved more than 10% despite additional expansion costs during the quarter.

UPS Freight revenue increased slightly on a 3.1% increase in LTL revenue per hundredweight. Both tonnage and operating profit were negatively impacted by the severe winter weather.

Outlook

“During the quarter, the momentum of the underlying business was masked by the disruption of inclement weather,” said Kurt Kuehn, UPS chief financial officer. “We are encouraged by the positive trends in our business and expect the remainder of the year to perform as we originally guided. However, due to the challenging start to 2014, we anticipate diluted earnings per share to be at the low end of our full-year guidance range of $5.05 to $5.30.”

Copyright Photo: Tony Storck/AirlinersGallery.com. Boeing 767-34AF ER N328UP (msn 27754) in Blended Winglets prepares to land at Philadelphia International Airport (PHL).

UPS Airlines: