10-KPeriod: FY2018

UNITED PARCEL SERVICE INC Annual Report, Year Ended Dec 31, 2018

Filed February 21, 2019For Securities:UPS

Summary

United Parcel Service (UPS) reported solid revenue growth in 2018, driven by increases across all its segments, with total revenue reaching $71.86 billion. However, operating profit saw a decline of 6.7% to $7.02 billion, impacted by approximately $360 million in pre-tax transformation strategy costs, higher pension expenses, and one less operating day. Diluted earnings per share decreased to $5.51 from $5.61 in the prior year. Despite these headwinds, UPS continued to invest in its global network, expanding capacity and technology, particularly in its International Package and Supply Chain & Freight segments, which showed operating profit growth. The company also remained committed to shareholder returns, increasing its quarterly dividend and continuing its share repurchase program. Key areas of strategic focus include growth in international markets, e-commerce, healthcare logistics, and operational efficiencies through technology. The company's financial health remains strong, supported by robust cash generation. UPS is navigating a dynamic operating environment, including competitive pressures, evolving regulatory landscapes, and the impact of global economic conditions. Management's strategic investments are aimed at modernizing operations and enhancing service offerings to meet growing customer demands, especially in e-commerce and specialized logistics sectors. The company's comprehensive network and broad service portfolio continue to be significant competitive advantages.

Financial Highlights

54 data points
Beta

Revenue

$71.86B

Net Income

$4.79B

6.7% Net Margin

EPS (Diluted)

$5.51

Total Assets

$50.02B

Cash & Equivalents

$4.22B

Free Cash Flow

$6.43B

Financial Statements
Beta
Revenue$71.86B
Operating Expenses$64.84B
Operating Income$7.02B
Interest Expense$605.00M
Net Income$4.79B
EPS (Basic)$5.53
EPS (Diluted)$5.51
Shares Outstanding (Basic)866.00M
Shares Outstanding (Diluted)870.00M

Key Highlights

  • 1Total revenue increased by 7.9% to $71.86 billion in 2018.
  • 2Operating profit decreased by 6.7% to $7.02 billion, impacted by transformation costs and higher pension expenses.
  • 3Diluted Earnings Per Share (EPS) declined to $5.51 from $5.61 in the prior year.
  • 4The company experienced strong volume growth in its International Package (3.1% average daily volume) and Supply Chain & Freight (10.8% revenue growth) segments.
  • 5UPS continued its strategic investments in technology and network modernization as part of its transformation strategy.
  • 6The company maintained a strong financial position with $5.035 billion in cash, cash equivalents, and marketable securities.
  • 7Shareholder returns were supported by a 5.5% increase in the quarterly dividend and ongoing share repurchases.

Frequently Asked Questions

UPS's revenue growth in 2018 was primarily driven by increased volume across all segments and improvements in revenue per piece due to pricing initiatives and a favorable product mix. E-commerce growth, particularly in business-to-consumer shipments, was a significant contributor to volume increases in the U.S. Domestic Package segment. International Package operations saw growth driven by strong demand across major trade lanes, while Supply Chain & Freight benefited from increased truckload brokerage volume and tonnage in air and ocean freight forwarding.

Operating profit was negatively impacted by several factors in 2018. The company incurred approximately $360 million in pre-tax transformation strategy costs related to modernization efforts. Higher pension expenses, primarily due to lower discount rates and mark-to-market losses, also weighed on profits. Additionally, there was one less operating day in the year, and costs associated with bringing new facility and technology projects online contributed to the decrease. Increased employee compensation and benefit costs, along with higher fuel prices and purchased transportation expenses, also played a role.

UPS is making significant investments in its global smart logistics network, focusing on modernizing operations through state-of-the-art technology. Key investments include expanding automated sort capacity, upgrading its air and ground networks, and implementing new technologies for greater efficiency and resource optimization. Strategic growth areas include expanding services for small and medium-sized businesses, growing international markets, capitalizing on global e-commerce, and enhancing healthcare and life-sciences logistics. These investments are designed to improve service quality, reduce costs, and drive long-term profitability.

As of the filing date, the national master agreement with the Teamsters for the U.S. Domestic Package business unit was considered ratified, with remaining local and supplemental agreements in negotiation. The UPS Freight business unit's national master agreement was ratified in November 2018. The company also noted that its pilots' collective bargaining agreement becomes amendable in September 2021, and its airline mechanics' agreement was recently ratified with an amendable date of November 2023. Auto and maintenance mechanics' agreements were set to expire in July 2019.