10-QPeriod: Q1 FY2014

UNITED PARCEL SERVICE INC Quarterly Report for Q1 Ended Mar 31, 2014

Filed May 8, 2014For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported its first-quarter 2014 financial results, showing a mixed performance impacted by challenging economic conditions and adverse weather. Total revenue for the quarter increased by 2.6% to $13.8 billion, driven by growth in U.S. Domestic Package volume, particularly from e-commerce and business-to-consumer shipments. However, operating profit declined by 4.2% to $1.5 billion, and net income fell 12.2% to $911 million. This decline was attributed to increased operating expenses, including higher compensation and benefits, and the negative impact of severe weather conditions in the U.S. The International Package segment showed growth in revenue and operating profit, benefiting from strong intra-European trade and demand in key markets, although a shift from premium to standard delivery products affected revenue per piece. Looking ahead, UPS continues to focus on improving network efficiency, yield management, and cost containment through technology investments and network adjustments. The company also finalized a new labor agreement with the Teamsters, which includes retroactive economic provisions and a significant change in healthcare benefit management, resulting in a substantial one-time charge in the second quarter of 2014.

Financial Highlights

52 data points
Beta

Revenue

$13.78B

Net Income

$911.00M

6.6% Net Margin

EPS (Diluted)

$0.98

Total Assets

$37.09B

Cash & Equivalents

$5.95B

Free Cash Flow

$1.95B

Financial Statements
Beta
Revenue$13.78B
Operating Expenses$12.27B
Operating Income$1.51B
Interest Expense$90.00M
Net Income$911.00M
EPS (Basic)$0.99
EPS (Diluted)$0.98
Shares Outstanding (Basic)923.00M
Shares Outstanding (Diluted)931.00M

Key Highlights

  • 1Revenue grew 2.6% year-over-year to $13.78 billion, primarily driven by U.S. Domestic Package volume increases.
  • 2Operating profit decreased 4.2% to $1.51 billion, and net income fell 12.2% to $911 million, impacted by rising operating expenses and adverse weather.
  • 3U.S. Domestic Package revenue increased 2.6% to $8.49 billion, with total average daily package volume up 4.2%, driven by e-commerce growth, though partially offset by weather disruptions.
  • 4International Package revenue rose 5.0% to $3.13 billion, with average daily package volume up 7.9%, benefiting from European trade, but impacted by a shift to lower-yield standard products.
  • 5Supply Chain & Freight revenue slightly decreased by 1.0% to $2.16 billion, with operating profit increasing 3.5% to $148 million.
  • 6The company repurchased $670 million of its common stock during the quarter as part of its ongoing share repurchase program.
  • 7A new collective bargaining agreement was ratified with the Teamsters, leading to a significant non-cash charge related to healthcare benefit plan changes expected in the second quarter of 2014.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in U.S. Domestic Package volume, particularly from e-commerce and business-to-consumer shipments. The International Package segment also contributed positively due to strong European trade and growth in key markets, despite a shift towards lower-yield standard delivery products.

Profitability was negatively impacted by increased operating expenses, including higher compensation and benefits costs. Severe adverse weather conditions in the U.S. also led to service disruptions, reduced productivity, and higher operational costs, significantly affecting operating profit. A shift in product mix towards lower-yielding services in the International segment also pressured profitability.

UPS ratified a new national master agreement with the Teamsters, which includes retroactive economic provisions and a substantial change in how healthcare benefits are managed. This transition will result in a significant pre-tax charge of approximately $1.047 billion in the second quarter of 2014, primarily related to the remeasurement of postretirement obligations and settlement costs, although it is expected to remove a significant liability from the balance sheet.

Net cash provided by operating activities increased significantly to $2.27 billion, driven by improved working capital and a decrease in income tax payments. The company continued its share repurchase program, spending $670 million on repurchasing its common stock. Capital expenditures were $322 million, lower than the prior year, partly due to the completion of the Cologne air hub expansion.