10-QPeriod: Q2 FY2018

UNITED PARCEL SERVICE INC Quarterly Report for Q2 Ended Jun 30, 2018

Filed August 2, 2018For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported strong revenue growth for the second quarter and the first six months of 2018, driven by increased package volumes and yield improvements across all segments. Consolidated revenue rose 9.6% in Q2 and 10.0% year-to-date. Despite revenue growth, operating profit saw a decline due to significant investments in transformation strategy costs, particularly impacting the U.S. Domestic Package segment. Net income and diluted earnings per share showed positive growth, indicating resilient profitability despite increased expenses. The company highlighted continued demand for its services, especially driven by e-commerce, and strategic initiatives such as expanded Saturday operations. However, increased operating expenses, including higher compensation and benefits, fuel costs, and pension expenses, partially offset revenue gains. Management is focused on realizing the benefits of these investments in future periods. The company's liquidity position remains strong, with sufficient cash flows to cover operational needs, capital expenditures, and shareholder returns.

Financial Highlights

54 data points
Beta

Revenue

$17.46B

Net Income

$1.49B

8.5% Net Margin

EPS (Diluted)

$1.71

Total Assets

$45.22B

Cash & Equivalents

$4.21B

Free Cash Flow

$1.82B

Financial Statements
Beta
Revenue$17.46B
Operating Expenses$15.68B
Operating Income$1.77B
Interest Expense$149.00M
Net Income$1.49B
EPS (Basic)$1.71
EPS (Diluted)$1.71
Shares Outstanding (Basic)866.00M
Shares Outstanding (Diluted)870.00M

Key Highlights

  • 1Consolidated revenue increased by 9.6% to $17.456 billion in Q2 2018 and by 10.0% to $34.569 billion year-to-date.
  • 2Net income grew 7.3% in Q2 2018 to $1.485 billion, and 11.0% year-to-date to $2.830 billion.
  • 3Diluted Earnings Per Share (EPS) increased by 8.2% to $1.71 in Q2 2018 and by 11.7% to $3.25 year-to-date.
  • 4Operating profit decreased by 13.0% in Q2 2018 to $1.773 billion and by 9.9% year-to-date to $3.293 billion, primarily due to transformation strategy costs and increased operating expenses.
  • 5U.S. Domestic Package segment experienced a 25.2% decline in operating profit in Q2 due to transformation strategy costs, increased compensation, benefits, and pension expenses.
  • 6International Package operations showed a strong 13.6% revenue increase in Q2, with operating profit rising 8.4%.
  • 7The company incurred $263 million in transformation strategy costs during Q2 2018, impacting operating expenses and profitability.

Frequently Asked Questions

Revenue growth was primarily driven by increased average daily package volume, up 3.0% in the second quarter and 3.8% year-to-date, and an increase in average revenue per piece, up 4.6% in Q2 and 4.4% year-to-date. This was fueled by strong demand, particularly from e-commerce, and yield improvements across all major product categories and segments.

The decrease in operating profit was significantly influenced by approximately $263 million in transformation strategy costs incurred during the second quarter of 2018. These costs, related to a voluntary retirement plan and other initiatives, increased operating expenses. Additionally, higher compensation and benefits, increased fuel costs, and higher pension expenses also contributed to the rise in operating expenses, which outpaced revenue growth.

The U.S. Domestic Package segment saw strong revenue growth (6.3% in Q2), but its operating profit decreased by 25.2% in Q2. This decline was primarily due to the significant impact of transformation strategy costs, along with increased costs for compensation, benefits, fuel, and pension expenses, which were not fully offset by revenue gains and yield improvements in this segment.

UPS expects total capital expenditures for 2018 to be approximately $6.5 to $7.0 billion, funding anticipated future growth and asset replacement. The company's liquidity position remains strong, with $4.934 billion in cash, cash equivalents, and marketable securities as of June 30, 2018. Management believes this position, combined with cash flows from operations, is adequate to meet operating requirements, capital expenditure programs, transformation strategy, and shareholder distributions.