- Positive Momentum Continues with 2Q EPS up 6%
- International Achieves 2Q Record as Operating Profit Climbs 11%
- U.S. Domestic and International Operating Margins Expand
- Higher International Exports Driven by Express Products
- Revenue Growth Tempered by Changes in Fuel and Currency
- Affirms Full-Year 2016 EPS Guidance of $5.70 to $5.90
UPS (NYSE:UPS) today announced second-quarter 2016 diluted earnings per share of $1.43, a 6% increase over the same period last year. International operating profit increased 11% to $613 million, representing the sixth consecutive quarter of double-digit growth.
Total revenue was $14.6 billion, up 3.8% over the same quarter last year. Revenue growth was reduced by changes in fuel surcharges and currency exchange rates. On a currency-neutral basis, revenue increased 4.0%. Lower fuel surcharge rates reduced revenue growth by approximately 120 basis points.
"We are investing to expand our global network, implementing new technologies and capturing new revenue in high-growth markets," said David Abney, UPS chairman and CEO. "These strategic investments in our diversified business again this quarter generated strong value for our customers and shareowners."
For the six months ended June 30, UPS generated $4.7 billion in cash from operations and $3.7 billion in free cash flow after making capital expenditures of $1.0 billion. The company paid dividends of about $1.3 billion, an increase of 6.8% per share over the same quarter in 2015. UPS also repurchased 13.3 million shares for approximately $1.3 billion.
U.S. Domestic Package
U.S. Domestic operating profit increased to $1.2 billion and operating margin expanded 10 basis points to 13.7%. Productivity improvements bolstered by technology, combined with lower fuel costs, resulted in a 0.2% reduction in cost per unit compared to the same quarter in 2015.
Total revenue increased 2.4% over the second quarter of 2015, to $9.0 billion. Average daily package volume increased 2.5%, with Next Day Air up 5.6% and Ground products up 2.4%. Strong business-to-consumer (B2C) growth trends continued this quarter, outpacing business delivery growth more than five to one.
Revenue per package was flat compared to the same period last year. Fuel surcharge rates reduced yield growth by more than 100 basis points. Growth in base rates offset changes in product and customer mix.
International operating profit jumped more than 11% to $613 million, setting a record second-quarter level. Volume growth in all products, disciplined pricing and network efficiency gains contributed to the increase in profitability.
Revenue was up 1.1% compared to the prior year, however currency was a drag of 40 basis points. Lower fuel surcharges reduced revenue growth by approximately 170 basis points. Daily Export packages increased 3.9%, as growth out of Europe and Asia offset lower U.S. levels. The Europe-to-U.S. trade lane increased at a double-digit pace, as customers used the UPS network to benefit from the strength of the U.S. dollar. Export shipments increased across all product categories and premium products outpaced non-premium.
Revenue per package decreased 1.9%, and on a currency-neutral basis revenue per package was down 1.4%. Lower fuel surcharge rates reduced revenue per package growth by around 140 basis points. Base rate improvements were offset by changes in trade lane and customer mix.
Supply Chain & Freight
Supply Chain and Freight revenue increased by more than 13%, to $2.5 billion. This was mainly due to the acquisition of Coyote Logistics in the third quarter of last year. Weak market conditions in the Air Freight Forwarding and LTL markets weighed on top-line growth.
The Forwarding business expanded operating margins through a focus on revenue quality and operating cost reductions. The asset-light, truckload brokerage business is performing well, despite a continuing soft market.
The Distribution unit experienced strong revenue growth in the Healthcare, Aerospace and Automotive sectors. During the quarter, Healthcare became the highest revenue industry sector in our contract logistics business. Operating profit increased and operating margin expanded over the prior-year period.
UPS Freight LTL revenue per hundredweight increased 2.9% over the same period last year. Total tonnage remains challenged by current market conditions. The business unit remains focused on disciplined revenue management and profitable trade lanes.
“UPS produced solid second quarter results, despite the continued uncertainty in the macro economy,” said Richard Peretz, UPS chief financial officer. “The technology and productivity investments in our integrated network are delivering strong results. We reaffirm our guidance for 2016 full-year diluted earnings per share of $5.70 to $5.90.”
Conference Call Information:
UPS CEO David Abney and CFO Richard Peretz will discuss second quarter results with investors and analysts during a conference call at 8:30 a.m. ET, July 29, 2016. That call is open to listeners through a live webcast. To access the call, go to www.investors.ups.com and click on “Quarterly Earnings” then “Webcast.”
We supplement the reporting of our financial information determined under generally accepted accounting principles ("GAAP") with certain non-GAAP financial measures, including, as applicable, "as adjusted" operating profit, operating margin, pre-tax income, net income and earnings per share. The equivalent measures determined in accordance with GAAP are also referred to as "reported" or "unadjusted.” Additionally, we disclose free cash flow as well as revenue and revenue per piece growth adjusted for the impact of foreign currency. We believe that these adjusted measures provide meaningful information to assist investors and analysts in understanding our financial results and assessing our prospects for future performance. We believe these adjusted financial measures are important indicators of our recurring operations because they exclude items that may not be indicative of, or are unrelated to, our core operating results, and provide a better baseline for analyzing trends in our underlying businesses. Furthermore, we use these adjusted financial measures to determine awards for our management personnel under our incentive compensation plans.
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UPS (NYSE: UPS) is a global leader in logistics, offering a broad range of solutions including transporting packages and freight; facilitating international trade, and deploying advanced technology to more efficiently manage the world of business. Headquartered in Atlanta, UPS serves more than 220 countries and territories worldwide. The company can be found on the web at ups.com® or pressroom.ups.com and its corporate blog can be found at longitudes.ups.com. To get UPS news direct, follow @UPS_News on Twitter.
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