10-QPeriod: Q1 FY2019

UNITED PARCEL SERVICE INC Quarterly Report for Q1 Ended Mar 31, 2019

Filed April 30, 2019For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported its first quarter 2019 financial results, showing a slight increase in consolidated revenue to $17.160 billion, up 0.3% year-over-year. However, operating profit saw a notable decrease of 8.3% to $1.394 billion, impacting net income, which fell 17.4% to $1.111 billion. Diluted earnings per share also decreased by 17.4% to $1.28. The decline in profitability was largely attributed to increased operating expenses, including costs associated with a multi-year transformation strategy, higher compensation and benefit costs, and planned investments in the company's logistics network. While U.S. Domestic Package operations saw revenue growth driven by volume increases, operating profit in this segment declined. International Package operations experienced a revenue decrease, primarily due to currency impacts and a shift in service mix, though adjusted operating profit saw an increase. Supply Chain & Freight operations also reported a revenue decline, mainly in the Forwarding business, but operating profit improved due to cost management initiatives.

Financial Highlights

54 data points
Beta

Revenue

$17.16B

Net Income

$1.11B

6.5% Net Margin

EPS (Diluted)

$1.28

Total Assets

$52.06B

Cash & Equivalents

$4.54B

Free Cash Flow

$763.00M

Financial Statements
Beta
Revenue$17.16B
Operating Expenses$15.77B
Operating Income$1.39B
Interest Expense$169.00M
Net Income$1.11B
EPS (Basic)$1.28
EPS (Diluted)$1.28
Shares Outstanding (Basic)866.00M
Shares Outstanding (Diluted)869.00M

Key Highlights

  • 1Consolidated revenue increased slightly by 0.3% to $17.16 billion.
  • 2Operating profit decreased significantly by 8.3% to $1.39 billion.
  • 3Net income decreased by 17.4% to $1.11 billion.
  • 4Diluted earnings per share declined by 17.4% to $1.28.
  • 5The company incurred $123 million in transformation strategy costs during the quarter.
  • 6U.S. Domestic Package segment revenue grew, but operating profit declined.
  • 7International Package segment revenue decreased, but adjusted operating profit increased.

Frequently Asked Questions

The decrease in operating profit was primarily driven by higher operating expenses. These included costs associated with the company's multi-year transformation strategy, increased compensation and benefit costs (including higher employee wages, benefits, and healthcare expenses), and planned investments in UPS's smart global logistics network. Additionally, factors like one less operating day in the quarter, the timing of the Easter holiday, and adverse weather conditions impacted results.

The adoption of ASC 842 on January 1, 2019, required UPS to recognize right-of-use assets and lease liabilities for operating leases on its balance sheet. This resulted in the recognition of approximately $2.65 billion in right-of-use assets and $2.70 billion in operating lease liabilities as of March 31, 2019. This change significantly increased both assets and liabilities on the balance sheet, impacting metrics like total assets and total liabilities.

UPS plans to invest approximately $7.0 billion in capital expenditures for 2019, primarily focusing on its smart global logistics network. The company believes its current cash position of $5.111 billion in cash, cash equivalents, and marketable securities, combined with its access to capital markets and operating cash flows, will be sufficient to meet its operational needs, fund capital expenditures, support its transformation strategy, and cover dividend payments, share repurchases, and debt obligations in the coming years.

The report highlights several legal proceedings, including an appeal against a New York court ruling resulting in $9.4 million in damages and $237.6 million in penalties related to cigarette shipments. There is also an ongoing investigation by the Department of Justice into the transportation of mail under USPS contracts, and competition authority investigations in Spain and Turkey regarding alleged anti-competitive agreements. UPS is actively defending itself in these matters.