10-QPeriod: Q2 FY2014

UNITED PARCEL SERVICE INC Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 6, 2014For Securities:UPS

Summary

United Parcel Service (UPS) reported its second quarter and first half of 2014 results, showing resilience in a dynamic economic environment. While revenue saw a moderate increase driven by volume growth, particularly from e-commerce and business-to-consumer shipments, profitability was significantly impacted by a substantial pre-tax charge of $1.066 billion related to changes in healthcare and welfare benefit plans stemming from the ratification of a new Teamsters' national master agreement. This charge, coupled with other adjustments, led to a notable decrease in reported operating profit and net income compared to the prior year's comparable periods. Despite these one-time charges, the company highlighted operational efficiencies and strategic initiatives aimed at improving network flexibility and cost containment. Volume growth, especially in the U.S. Domestic Package segment, was strong, supported by e-commerce trends and SurePost service. International Package operations showed steady growth, though with a continued shift from premium express to standard delivery products. The company also continued its share repurchase program, demonstrating a commitment to returning capital to shareholders.

Financial Highlights

52 data points
Beta

Revenue

$14.27B

Net Income

$454.00M

3.2% Net Margin

EPS (Diluted)

$0.49

Total Assets

$34.86B

Cash & Equivalents

$3.06B

Free Cash Flow

-$926.00M

Financial Statements
Beta
Revenue$14.27B
Operating Expenses$13.52B
Operating Income$747.00M
Interest Expense$89.00M
Net Income$454.00M
EPS (Basic)$0.49
EPS (Diluted)$0.49
Shares Outstanding (Basic)918.00M
Shares Outstanding (Diluted)927.00M

Key Highlights

  • 1Revenue increased by 5.6% for the quarter and 4.1% year-to-date, primarily driven by volume growth in the U.S. Domestic Package segment.
  • 2A significant one-time pre-tax charge of $1.066 billion was incurred in Q2 2014 related to changes in healthcare and welfare benefit plans due to new labor agreements.
  • 3Reported operating profit decreased by 57.1% for the quarter and 32.0% year-to-date due to the aforementioned charges.
  • 4Net income saw a substantial decline of 57.6% for the quarter and 35.2% year-to-date.
  • 5U.S. Domestic Package segment experienced robust volume growth (7.4% for the quarter), driven by e-commerce and SurePost service.
  • 6International Package segment revenue grew 6.2% for the quarter, with a notable shift towards standard delivery products from premium express.
  • 7The company continued its share repurchase program, with $1.363 billion spent in the first six months of 2014.
  • 8Cash flows from operations were impacted by a $1.995 billion settlement of postretirement benefit obligations.

Frequently Asked Questions

The substantial decrease in net income and operating profit was primarily due to a one-time pre-tax charge of $1.066 billion related to changes in healthcare and welfare benefit plans. This charge resulted from the ratification of the new national master agreement with the Teamsters union, impacting past and future benefit obligations.

E-commerce and omni-channel retail sales continued to drive significant volume increases, particularly in the U.S. Domestic Package segment. UPS SurePost volume saw exceptional growth, contributing substantially to the overall volume increase. This trend positively impacted revenue and package volume.

UPS ratified a new national master agreement with the Teamsters on April 24, 2014, effective through July 31, 2018. This ratification led to significant healthcare and welfare plan changes, resulting in a $1.066 billion pre-tax charge. The agreement also included retroactive wage increases and increased benefit contributions. Other labor agreements, such as with pilots and mechanics, were also in negotiation or had recently been ratified.

The International Package segment reported revenue growth of 6.2% for the quarter. However, the segment experienced a continued trend of customers shifting from premium express products to standard delivery products due to economic pressures and supply chain network changes. This shift impacts revenue per piece and product mix.