10-QPeriod: Q2 FY2015

UNITED PARCEL SERVICE INC Quarterly Report for Q2 Ended Jun 30, 2015

Filed August 7, 2015For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported its financial results for the second quarter and first six months of 2015. For the three months ended June 30, 2015, revenue was $14.095 billion, a slight decrease of 1.2% compared to $14.268 billion in the same period of 2014. However, operating profit saw a significant increase of 162.4% to $1.960 billion, up from $747 million in Q2 2014, largely due to a significant decrease in operating expenses, particularly compensation and benefits, and lower fuel costs, while excluding a substantial one-time health and welfare plan charge in the prior year. Diluted earnings per share were $1.35 for the quarter, a substantial improvement from $0.49 in Q2 2014. For the six months ended June 30, 2015, revenue remained relatively flat at $28.072 billion compared to $28.047 billion in the prior year. Operating profit more than doubled to $3.633 billion from $2.260 billion in the same period of 2014. Diluted earnings per share for the six months were $2.48, up from $1.47 in the prior year. The company highlighted operational efficiency improvements, technology deployments like ORION, and strategic initiatives to manage costs and enhance network capacity as key drivers of these improved results. Additionally, UPS announced a significant acquisition of Coyote Logistics Holdings, LLC for $1.8 billion, expected to close in Q3 2015, to strengthen its freight brokerage capabilities.

Financial Highlights

52 data points
Beta

Revenue

$14.10B

Net Income

$1.23B

8.7% Net Margin

EPS (Diluted)

$1.35

Total Assets

$37.25B

Cash & Equivalents

$3.43B

Free Cash Flow

$895.00M

Financial Statements
Beta
Revenue$14.10B
Operating Expenses$12.13B
Operating Income$1.96B
Interest Expense$86.00M
Net Income$1.23B
EPS (Basic)$1.37
EPS (Diluted)$1.35
Shares Outstanding (Basic)901.00M
Shares Outstanding (Diluted)908.00M

Key Highlights

  • 1Revenue for Q2 2015 was $14.095 billion, a slight decrease of 1.2% year-over-year, while revenue for the six months was flat at $28.072 billion.
  • 2Operating profit significantly improved in Q2 2015 to $1.960 billion (+162.4% YoY) and for the year-to-date to $3.633 billion (+60.8% YoY), driven by cost controls and operational efficiencies.
  • 3Diluted Earnings Per Share (EPS) rose to $1.35 in Q2 2015 from $0.49 in Q2 2014, and to $2.48 for the six months from $1.47 in the prior year.
  • 4Operating expenses decreased by 10.3% in Q2 2015 compared to Q2 2014, largely due to lower compensation and benefits and fuel costs, excluding a significant prior-year health and welfare plan charge.
  • 5The U.S. Domestic Package segment showed strong recovery in operating profit, increasing by 95.9% year-over-year to $2.225 billion for the six months, driven by volume growth and efficiency gains.
  • 6The International Package segment's revenue decreased by 5.7% year-to-date, impacted by currency fluctuations and a shift towards standard delivery products, although operating profit grew by 15.5% on an adjusted basis.
  • 7The company announced a definitive agreement to acquire Coyote Logistics Holdings, LLC for $1.8 billion, expected to close in the third quarter of 2015, to enhance its supply chain and freight capabilities.

Frequently Asked Questions

The substantial increase in operating profit for Q2 2015 was primarily driven by a significant decrease in operating expenses, particularly compensation and benefits, and lower fuel costs. This improvement was also bolstered by operational efficiency initiatives and technology deployments. It's important to note that the comparison benefited from the absence of a large one-time health and welfare plan charge incurred in the second quarter of 2014.

Currency fluctuations had a mixed impact. While foreign currency translation and remeasurement negatively impacted revenue in the International Package and Supply Chain & Freight segments, favorable currency movements also contributed to lower operating expenses in these segments. The company actively uses hedging strategies to manage foreign exchange risks.

The pending acquisition of Coyote Logistics Holdings, LLC for $1.8 billion is a strategic move to enhance UPS's capabilities in the truckload freight brokerage market. This acquisition is expected to strengthen its Supply Chain & Freight segment and expand its non-asset based logistics offerings, aligning with industry trends and customer demands.

Lower fuel prices resulted in decreased fuel expenses, which was a positive factor for UPS. However, this was partially offset by a decrease in fuel surcharge revenue, as fuel surcharges are directly linked to fuel prices. The company reported that for the second quarter of 2015, fuel surcharge revenue decreased at a faster rate than fuel expense, negatively impacting operating profit for the quarter.