10-QPeriod: Q1 FY2020

UNITED PARCEL SERVICE INC Quarterly Report for Q1 Ended Mar 31, 2020

Filed May 8, 2020For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported its first-quarter 2020 financial results, marked by a significant increase in revenue driven by business-to-consumer (B2C) shipments, which surged due to the onset of the COVID-19 pandemic and associated stay-at-home orders. While consolidated revenue grew 5.1% to $18.0 billion, the shift in shipment mix from business-to-business (B2B) to B2C negatively impacted revenue per piece and compressed operating margins, leading to a 23.1% decrease in operating profit to $1.1 billion. The company incurred higher operating expenses, particularly in compensation and benefits, due to increased union labor hours and other factors related to the pandemic's operational demands. Despite these challenges, UPS maintained strong operating cash flow and managed its capital expenditures, reducing its 2020 forecast by $1.0 billion and suspending its share repurchase program for the remainder of the year in response to economic uncertainties.

Financial Highlights

54 data points
Beta

Revenue

$18.04B

Net Income

$965.00M

5.4% Net Margin

EPS (Diluted)

$1.11

Total Assets

$60.90B

Cash & Equivalents

$8.96B

Free Cash Flow

$1.62B

Financial Statements
Beta
Revenue$18.04B
Operating Expenses$16.96B
Operating Income$1.07B
Interest Expense$167.00M
Net Income$965.00M
EPS (Basic)$1.12
EPS (Diluted)$1.11
Shares Outstanding (Basic)864.00M
Shares Outstanding (Diluted)869.00M

Key Highlights

  • 1Consolidated revenue increased by 5.1% to $18.0 billion, driven by a 6.9% rise in average daily package volume, largely from U.S. Domestic Package operations.
  • 2The shift towards business-to-consumer (B2C) shipments, exacerbated by COVID-19, led to a 1.8% decrease in average revenue per piece for International Package operations and a 0.8% decrease for U.S. Domestic Package operations.
  • 3Operating profit saw a substantial decline of 23.1% to $1.1 billion, and operating margin compressed to 5.9% from 8.1% in the prior year, primarily due to increased operating expenses and a less favorable revenue mix.
  • 4Net income decreased by 13.1% to $965 million, resulting in diluted earnings per share (EPS) of $1.11, down from $1.28 in the prior year.
  • 5The company reported an increase in cash flow from operations to $2.6 billion, demonstrating resilient operational cash generation.
  • 6In response to economic uncertainty from COVID-19, UPS reduced its 2020 capital expenditure forecast by $1.0 billion and suspended its share repurchase program for the remainder of the year.
  • 7Transformation strategy costs amounted to $45 million in Q1 2020, a significant decrease from $123 million in Q1 2019, indicating progress in the transformation initiative.

Frequently Asked Questions

The COVID-19 pandemic significantly impacted UPS's first-quarter 2020 results. While it drove a surge in business-to-consumer (B2C) shipments, increasing overall package volume, it also led to a decline in business-to-business (B2B) activity. This shift in mix resulted in lower average revenue per piece and compressed operating margins due to increased operational costs per package, such as higher union labor hours and lower delivery density. The company also recorded an incremental allowance for credit losses due to disruptions in customer collections.

The U.S. Domestic Package segment saw revenue increase by 9.3% due to higher volume, but its operating profit fell significantly by 45.3% as increased operating expenses and a less favorable mix impacted margins. The International Package segment experienced a 2.2% revenue decrease, impacted by lower volumes and currency effects, although operating profit increased slightly by 4.4% due to cost management. The Supply Chain & Freight segment's revenue decreased by 0.8%, and its operating profit declined by 21.5%, reflecting challenges in forwarding and freight markets, partly offset by growth in logistics due to healthcare demand.

Yes, in response to the economic uncertainty stemming from the COVID-19 pandemic, UPS took proactive measures. The company reduced its 2020 capital expenditure forecast by $1.0 billion, deferring certain projects. Additionally, UPS announced the suspension of its share repurchase program for the remainder of 2020. The company maintained its commitment to regular cash dividends.

Transformation Strategy Costs represent investments and changes in processes and technology aimed at improving the company's operations. These costs decreased significantly from $123 million in Q1 2019 to $45 million in Q1 2020, indicating that the company is progressing through its multi-year transformation initiative. Management uses adjusted figures that exclude these costs to provide a clearer view of underlying operational performance.