10-QPeriod: Q1 FY2016

UNITED PARCEL SERVICE INC Quarterly Report for Q1 Ended Mar 31, 2016

Filed May 10, 2016For Securities:UPS

Summary

United Parcel Service (UPS) reported solid financial performance for the first quarter of 2016, demonstrating revenue growth driven by increased package volumes, particularly in e-commerce and business-to-consumer segments. The company saw a notable increase in operating profit, attributed to improved operational efficiency, cost containment initiatives, and the successful deployment of technology like the ORION system. While facing a mixed global economic environment with some international markets showing weakness, UPS effectively managed its international segment's profitability through strategic revenue management and cost control. Key financial highlights include a 3.2% increase in consolidated revenue to $14.4 billion and a 9.0% rise in operating profit to $1.8 billion, leading to a 13.4% increase in diluted earnings per share to $1.27. The company's balance sheet remains strong, with healthy cash reserves. UPS also continued its commitment to returning capital to shareholders through dividends and share repurchases. While potential headwinds exist, particularly concerning employee benefit obligations and evolving regulatory landscapes, UPS's operational execution and strategic initiatives position it for continued performance.

Financial Highlights

52 data points
Beta

Revenue

$14.42B

Net Income

$1.13B

7.8% Net Margin

EPS (Diluted)

$1.27

Total Assets

$39.17B

Cash & Equivalents

$3.89B

Free Cash Flow

$2.24B

Financial Statements
Beta
Revenue$14.42B
Operating Expenses$12.60B
Operating Income$1.82B
Interest Expense$93.00M
Net Income$1.13B
EPS (Basic)$1.27
EPS (Diluted)$1.27
Shares Outstanding (Basic)889.00M
Shares Outstanding (Diluted)894.00M

Key Highlights

  • 1Consolidated revenue increased by 3.2% to $14.4 billion compared to the prior year's first quarter.
  • 2Operating profit saw a significant increase of 9.0% to $1.8 billion, driven by efficiency gains and cost management.
  • 3Diluted Earnings Per Share (EPS) grew by 13.4% to $1.27.
  • 4U.S. Domestic Package segment revenue grew 3.1%, with total average daily volume up 2.8%, driven by e-commerce and business-to-consumer shipments.
  • 5International Package segment operating profit increased by 15.3%, despite a slight revenue dip, reflecting successful revenue management and cost control.
  • 6Supply Chain & Freight segment revenue increased by 10.4%, significantly boosted by the acquisition of Coyote Logistics.
  • 7Total operating expenses increased by 2.4%, outpacing revenue growth slightly, largely due to higher compensation and benefits costs, partially offset by lower fuel expenses.

Frequently Asked Questions

The acquisition of Coyote Logistics in August 2015 significantly boosted the Supply Chain & Freight segment's revenue, contributing to a 10.4% overall revenue increase for the segment in the first quarter of 2016. Coyote's financial results are included from the acquisition date, primarily impacting the Forwarding and Logistics portion of this segment.

The report indicates lower fuel prices in the first quarter of 2016 compared to the prior year, which led to a significant decrease (32.6%) in consolidated fuel expenses. While lower fuel prices benefited operating costs, they also resulted in lower fuel surcharge revenue, partially impacting revenue per piece across segments.

Compensation and benefits expenses increased by 3.8% year-over-year, primarily due to higher U.S. domestic hourly and management compensation costs. This includes contractual union wage increases, a rise in average daily union labor hours to support volume growth, and increased health and welfare costs, including contributions to multiemployer plans and pension expenses.

The company is involved in several legal proceedings, including class-action lawsuits related to wage-and-hour laws, franchise disputes, and antitrust allegations. A significant point mentioned is the potential impact from the Central States Pension Fund (CSPF) regarding benefit reductions, which the company is challenging. While a proposed plan was rejected by the Treasury Department, the situation remains uncertain and could lead to material obligations. Additionally, a lawsuit from New York State and City regarding cigarette shipments is ongoing.