10-QPeriod: Q3 FY2016

UNITED PARCEL SERVICE INC Quarterly Report for Q3 Ended Sep 30, 2016

Filed November 3, 2016For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported solid financial results for the nine months ended September 30, 2016. Revenue increased by 3.9% to $43.975 billion, driven by a 3.6% increase in average daily package volume. Net income rose by 4.5% to $3.670 billion, translating to diluted earnings per share of $4.13. The company demonstrated effective cost management, with operating expenses growing at a slightly slower pace than revenue, leading to a 4.9% increase in operating profit to $5.895 billion. This performance reflects UPS's ability to navigate a challenging global economic environment through strategic initiatives focused on network efficiency, yield management, and operational cost containment. Key operational highlights include continued growth in U.S. Domestic Package volume, particularly in business-to-consumer shipments fueled by e-commerce. International Package operations also saw volume increases, supported by strong demand in key trade lanes. The Supply Chain & Freight segment experienced revenue growth, notably boosted by the acquisition of Coyote Logistics, although operating profit in this segment saw a slight decline year-over-year. The company continued its commitment to shareholder returns through significant share repurchases and dividend payments, underscoring a strong focus on capital allocation.

Financial Highlights

53 data points
Beta

Revenue

$14.93B

Net Income

$1.27B

8.5% Net Margin

EPS (Diluted)

$1.44

Total Assets

$38.34B

Cash & Equivalents

$3.30B

Free Cash Flow

-$204.00M

Financial Statements
Beta
Revenue$14.93B
Operating Expenses$12.89B
Operating Income$2.03B
Interest Expense$94.00M
Net Income$1.27B
EPS (Basic)$1.44
EPS (Diluted)$1.44
Shares Outstanding (Basic)880.00M
Shares Outstanding (Diluted)885.00M

Key Highlights

  • 1Revenue for the nine months ended September 30, 2016, increased by 3.9% to $43.975 billion, compared to $42.309 billion in the prior year.
  • 2Net income rose by 4.5% to $3.670 billion for the nine months ended September 30, 2016, compared to $3.513 billion in the prior year.
  • 3Diluted earnings per share (EPS) increased to $4.13 for the nine months ended September 30, 2016, from $3.87 in the same period last year.
  • 4Average daily package volume increased by 3.6% for the nine months ended September 30, 2016, reflecting continued demand for shipping services.
  • 5Operating profit for the nine months increased by 4.9% to $5.895 billion, indicating effective cost management and operational efficiency.
  • 6The company repurchased approximately $2.029 billion of its common stock year-to-date, demonstrating a commitment to returning capital to shareholders.
  • 7International Package operations showed robust operating profit growth, with a 13.2% increase year-to-date, driven by volume and revenue management initiatives.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in average daily package volume across all segments, particularly in U.S. Domestic Package and International Package operations. E-commerce growth and business-to-consumer shipments played a significant role in boosting volume.

The acquisition of Coyote Logistics, completed midway through the third quarter of 2015, significantly contributed to revenue growth in the Forwarding and Logistics part of the Supply Chain & Freight segment. However, it also increased operating expenses and slightly reduced operating profit for the segment year-over-year, partially due to the integration and operational adjustments.

Employee benefit costs, including pension and postretirement benefits, remain a significant expense. The company is closely monitoring its obligations related to multiemployer pension plans, specifically the Central States Pension Fund (CSPF), and potential future liabilities. While no liability has been recognized for potential coordinating benefits from the UPS/IBT Plan due to current uncertainties, the projected benefit obligation could increase substantially if the CSPF becomes insolvent.

UPS utilizes fuel surcharges as a primary means to mitigate the impact of fluctuating fuel prices. These surcharges are indexed to official fuel price data for jet fuel and diesel. The company also periodically enters into option contracts on energy commodity products to manage price risk associated with forecasted transactions involving refined fuels.