10-QPeriod: Q1 FY2017

UNITED PARCEL SERVICE INC Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 4, 2017For Securities:UPS

Summary

United Parcel Service (UPS) reported its first quarter 2017 financial results, showcasing a 6.2% increase in total revenue to $15.3 billion, primarily driven by strong performance in its U.S. Domestic Package and Supply Chain & Freight segments. Despite revenue growth, operating profit saw a slight decrease of 2.1% to $1.78 billion, impacted by increased operating expenses, particularly in fuel and compensation and benefits. The company highlighted steady growth in e-commerce and business-to-consumer shipments as key volume drivers. UPS's financial position remains robust with a healthy cash balance. The company continued its capital allocation strategy, investing in facility expansion and modernization while also repurchasing shares and increasing its dividend. Management emphasized ongoing initiatives to improve network efficiency, yield management, and cost containment, supported by technology advancements. The report also touches upon various legal proceedings and regulatory matters, none of which are expected to have a material adverse effect on the company's financial condition, results of operations, or liquidity at this time.

Financial Highlights

53 data points
Beta

Revenue

$15.51B

Net Income

$1.17B

7.5% Net Margin

EPS (Diluted)

$1.33

Total Assets

$38.38B

Cash & Equivalents

$2.69B

Free Cash Flow

-$699.00M

Financial Statements
Beta
Revenue$15.51B
Operating Expenses$13.89B
Operating Income$1.62B
Interest Expense$102.00M
Net Income$1.17B
EPS (Basic)$1.33
EPS (Diluted)$1.33
Shares Outstanding (Basic)874.00M
Shares Outstanding (Diluted)879.00M

Key Highlights

  • 1Total revenue increased by 6.2% to $15.3 billion in Q1 2017 compared to Q1 2016.
  • 2Operating profit decreased by 2.1% to $1.78 billion, with operating margin declining from 12.6% to 11.6%.
  • 3U.S. Domestic Package segment revenue grew 5.0%, driven by a 2.6% increase in average daily package volume, fueled by e-commerce and B2C shipments.
  • 4International Package segment revenue increased by 4.9%, despite a 5.7% decrease in average revenue per piece due to currency fluctuations and shorter trade lanes.
  • 5Supply Chain & Freight segment revenue saw significant growth of 12.5%, aided by acquisitions like Marken and strong performance in forwarding and logistics.
  • 6Operating expenses rose by 7.4%, with notable increases in fuel (43.1%) and purchased transportation (16.9%), impacting overall profitability.
  • 7Diluted Earnings Per Share (EPS) increased by 3.9% to $1.32.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in average daily package volume, particularly in the U.S. Domestic Package segment, fueled by the ongoing expansion of e-commerce and business-to-consumer (B2C) shipments. The Supply Chain & Freight segment also contributed significantly to revenue growth, bolstered by acquisitions and increased demand in forwarding and logistics.

Operating profit decreased by 2.1% due to a significant increase in operating expenses, which rose by 7.4%. Key factors contributing to this rise included higher fuel costs (up 43.1%), increased purchased transportation expenses (up 16.9%), and higher compensation and benefits costs. These rising costs outpaced the revenue growth, leading to a compression in operating margins.

UPS anticipates capital expenditures of approximately $4.0 billion for 2017, which includes planned deposits for aircraft. The company also has a significant share repurchase authorization and plans to repurchase approximately $1.8 billion of shares in 2017, indicating a continued commitment to returning capital to shareholders. Dividend payments are also expected to continue.

The company is involved in several ongoing legal proceedings, including class action lawsuits related to wage and hour laws, antitrust allegations, and a case concerning alleged shipments of untaxed cigarettes in New York. While UPS is vigorously defending itself and believes it has meritorious defenses, the New York cigarette case resulted in a finding of liability. However, management currently believes that the ultimate resolution of these matters, individually or in aggregate, will not have a material adverse effect on the company's financial condition, results of operations, or liquidity.