10-QPeriod: Q3 FY2014

UNITED PARCEL SERVICE INC Quarterly Report for Q3 Ended Sep 30, 2014

Filed November 6, 2014For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported its third-quarter and year-to-date results for the period ending September 29, 2014. The company demonstrated revenue growth across its segments, driven by increased package volume, particularly from e-commerce and business-to-consumer shipments. Despite revenue increases, the nine-month period saw a notable decrease in net income and earnings per share compared to the prior year, largely impacted by significant one-time charges related to health and welfare plan changes, including a substantial pre-tax charge of $1.066 billion recorded in the second quarter of 2014. Financially, UPS maintained a strong liquidity position with a significant amount of cash and cash equivalents. The company continued its commitment to shareholder returns through share repurchases and dividend payments. Management highlighted initiatives focused on network flexibility, yield management, and operational efficiency, including the deployment of technology like the ORION system, aimed at improving performance and controlling costs in a challenging global economic environment. The report also detailed ongoing legal proceedings and labor contract negotiations, which are being actively managed.

Financial Highlights

52 data points
Beta

Revenue

$14.29B

Net Income

$1.21B

8.5% Net Margin

EPS (Diluted)

$1.32

Total Assets

$35.91B

Cash & Equivalents

$4.20B

Free Cash Flow

$1.73B

Financial Statements
Beta
Revenue$14.29B
Operating Expenses$12.34B
Operating Income$1.95B
Interest Expense$87.00M
Net Income$1.21B
EPS (Basic)$1.33
EPS (Diluted)$1.32
Shares Outstanding (Basic)913.00M
Shares Outstanding (Diluted)922.00M

Key Highlights

  • 1Revenue increased by 5.7% to $14.29 billion for the third quarter of 2014 compared to the same period in 2013, driven by a 6.9% increase in average daily package volume.
  • 2Net income for the nine months ended September 30, 2014, decreased by 19.5% to $2.579 billion, primarily due to a $1.066 billion pre-tax charge related to health and welfare plan changes impacting U.S. Domestic Package, International Package, and Supply Chain & Freight segments.
  • 3Diluted Earnings Per Share (EPS) for the nine-month period decreased to $2.78 from $3.37 in the prior year, reflecting the impact of the significant one-time charges.
  • 4The U.S. Domestic Package segment saw revenue growth of 5.3% to $8.69 billion, with strong volume increases driven by e-commerce and business-to-consumer shipments.
  • 5International Package revenue grew 5.5% to $3.18 billion, supported by a 6.7% increase in average daily volume, though export revenue per piece declined due to a shift towards standard products.
  • 6Supply Chain & Freight revenue rose 7.4% to $2.416 billion, with positive contributions from forwarding/logistics and freight operations.
  • 7The company returned approximately $2.042 billion to shareholders through share repurchases and $1.780 billion through dividends during the first nine months of 2014, indicating a continued focus on capital allocation.
  • 8UPS invested $1.444 billion in capital expenditures for property, plant, and equipment during the nine-month period, with significant spending on buildings, facilities, and vehicles.

Frequently Asked Questions

The primary reason for the significant decrease in net income for the nine months ended September 30, 2014, was a substantial pre-tax charge of $1.066 billion ($665 million after-tax) recorded in the second quarter of 2014. This charge was related to changes in health and welfare benefit plans for certain union employees, stemming from the ratification of the national master agreement with the Teamsters.

The health and welfare plan charges had a significant impact on the U.S. Domestic Package segment, accounting for $957 million of the charge. The International Package segment incurred $27 million, and the Supply Chain & Freight segment incurred $82 million of these charges.

While the report highlights revenue growth driven by volume, the significant one-time charges have impacted profitability for the year-to-date period. Management continues to focus on improving network flexibility, yield management, and operational efficiency to navigate a challenging global economic environment. Specific forward-looking guidance for the remainder of the year is not detailed in this quarterly report's financial statements, but the ongoing initiatives suggest a focus on cost control and performance improvement.

Volume growth in the U.S. Domestic Package segment was primarily driven by continued strong growth in e-commerce and overall retail sales. Business-to-consumer shipments, which constitute about 45% of the segment's volume, grew significantly, with UPS SurePost experiencing more than 50% growth. Business-to-business volume also accelerated, supported by omni-channel retail, returns shipping, and growth in industrial, automotive, and government sectors.