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UPS releases 2Q 2019 Earnings

Saturday, July 27, 2019/ Editor -  

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Operating Profit Up in All Segments
 
  • 2Q19 EPS of $1.94; 2Q19 Adjusted* EPS of $1.96 
  • U.S. Daily Volume Grew Over 7%; Next Day Air Volume Soared Over 30%
  • U.S. Operating Profit Increased Nearly 29%; Up 8% on an Adjusted Basis 
  • International Boosts Operating Margins to 18.9%; Adjusted Margins of 19%
  • Supply Chain and Freight Operating Profit Increased Nearly 26%; Adjusted Operating Profit Up More Than 10%
  • Cash from Operations of $4.2B; Adjusted Free Cash Flow Near $2.2B
  • UPS reaffirms adjusted full-year diluted EPS in the range of $7.45 to $7.75
 
Dubai, UAE, July 27, 2019 – UPS (NYSE:UPS) today announced second-quarter 2019 adjusted earnings per share of $1.96.  The company turned the rising demand for next-day service into strong financial results in the U.S. and leveraged asset-light and proven cost management strategies in the International and Supply Chain and Freight segments. 
 
“Our Transformation initiatives are generating greater efficiencies across the network and, when combined with our growth strategies, UPS achieved profit growth in all segments,” said David Abney, UPS chairman and CEO. “We also announced a very extensive roll-out of new products and services such as UPS My Choice for Business, expanded UPS Access Points, and UPS Worldwide Economy, among others, for small- and medium-sized businesses, all designed to generate additional profitable growth.” 
 
Amounts presented on an adjusted basis exclude Transformation strategy costs. Second-quarter 2019 adjusted results exclude a pre-tax charge of $21 million, or $0.02 per share after tax.  Second-quarter 2018 adjusted results excluded a pre-tax charge of $263 million, or $0.23 per share after tax, primarily from the UPS Voluntary Retirement Program. 
 
Consolidated Results   Adjusted   Adjusted
  2Q 2019 2Q 2019 2Q 2018  2Q 2018
Revenue  $18,048 M   $17,456 M  
Net Income $1,685 M $1,702 M $1,485 M  $1,685M
Diluted Earnings Per Share  $1.94  $1.96  $1.71 $1.94
 
For the total company in 2Q 2019:
  • Consolidated revenue increased 3.4% to $18 billion, driven by gains in average daily volume in the U.S. and higher-quality, currency-neutral revenue in the International segment.  
  • Total operating profit grew nearly 21%, and 6.3% on an adjusted basis, with growth in all segments.
  • Total operating margin expanded 170 basis points; adjusted operating margin expanded 30 basis points.
  • Capital expenditures for the year are approximately $2.9 billion to support network enhancements.
  • Year-to-date dividends per share increased 5.5% and the company repurchased 4.8 million shares for approximately $500 million.
U.S. Domestic Segment
 
The U.S. Domestic segment generated significant volume growth in all products, led by a more than 30% surge in UPS Next Day Air volume. The sharp increase in demand for the company’s next-day services was driven by accelerated delivery requirements from e-commerce shippers. 
 
“Demand for faster delivery is a structural change in our industry,” said Abney. “Anticipating this change, our additional air capacity and modernized network enabled this growth to have a positive impact on profitability and positions UPS well to serve the growing needs of the market.”
 
Both B2B and B2C shipments grew within the period.  In addition, the company added more than 2 million square feet of new, automated sorting capabilities, increasing efficiency benefits and contributing to positive operating leverage. 
 
    Adjusted   Adjusted
  2Q 2019  2Q 2019 2Q 2018  2Q 2018
Revenue  $11,150 M   $10,354 M  
Operating profit  $1,208 M  $1,226 M  $939 M $1,135 M
  • Revenue increased $796 million or 7.7% over 2Q 2018, led by increased demand for air services from customers in healthcare and retail.
  • Operating profit increased by 28.6%, or 8% on an adjusted basis.
  • Operating margins were 10.8%, and 11% on an adjusted basis. 
  • Network efficiencies continued to reduce the growth in cost per piece, with a steady decline in unit cost growth for the third straight quarter. 
International Segment
 
International benefitted from its highly flexible network and by targeting growth markets within the company’s diverse revenue base. The segment generated its best second-quarter profit in history and expanded adjusted operating margins while navigating areas of trade uncertainty.
 
    Adjusted    Adjusted
  2Q 2019 2Q 2019 2Q 2018 2Q 2018
Revenue  $3,505 M   $3,602 M  
Operating profit  $663 M  $665 M  $618 M  $654M
  • International volume slightly declined due to global macroeconomic pressure and tough year-over-year comparisons, as 2Q 2018 exports grew 9.5%.
  • Total revenue per piece fell less than 1%, but grew nearly 2% when adjusting for currency.
  • International domestic revenue per piece rose 0.3%, an increase of 5.6% on a currency-neutral basis.
  • Operating profit increased more than 7%, or by 1.7% on an adjusted basis. 
Supply Chain and Freight Segment
 
Supply Chain and Freight grew operating profit to more than $270 million, a double-digit increase for the quarter. Successful cost management enabled by the company’s asset-light strategies delivered strong financial results while revenue was pressured by softer trade. 
 
    Adjusted   Adjusted
  2Q 2019  2Q 2019 2Q 2018  2Q 2018
Revenue  $3,393M    $3,500 M  
Operating profit  $272 M  $273 M  $216 M $247M
  • Operating margins expanded to 8% on an adjusted and unadjusted basis, due to strong execution, disciplined cost management and strategic initiatives that focus on delivering excellent service levels and growing high-quality revenue from the SMB market.
  • International Air Freight achieved robust profit growth on a decline in tonnage, driven by expanded buy/sell spreads.
  • Coyote and Marken made significant contributions to operating profit.
  • UPS Freight achieved a 3.9% increase in revenue per LTL (less-than-truckload) hundredweight as the unit focused on revenue quality.
Outlook
 
The company provides guidance on an adjusted (non-GAAP) basis because it is not possible to predict or provide a reconciliation reflecting the impact of future pension mark-to-market adjustments or other unanticipated events, which would be included in reported (GAAP) results and could be material.
 
“UPS grew profits across all business segments,” said Richard Peretz, UPS’s chief financial officer. “Our performance was driven by the efficiencies created by investments in our network, the success of ongoing initiatives and our ability to execute in an ever-changing environment. We expect to carry this momentum through the upcoming quarters.”
  • The company’s full-year adjusted diluted EPS will be in the range of $7.45 to $7.75.
  • Adjusted free cash flow for the year is projected to be between $3.5 and $4 billion with potential additional upside from the working capital initiatives.
  • The effective tax rate for the full-year 2019 is estimated to be between 22% and 24%.
  • Third-quarter adjusted EPS is expected to benefit from numerous items including one additional operating day and year-over-year International benefits from 2018 commodities headwinds that should not repeat.
  • Transformation charges and pension MTM are not included in the adjusted guidance.
 
 

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