UPS Revenue Accelerates In 4Q And Produces Record $61 Billion For 2016

US 01/31/17

Atlanta, GA

  • US Domestic 4Q Revenue Climbs 6.3%, Driven by Ecommerce
  • International Export Shipments Soar 8.4%, Led by Asia and Europe Regions
  • 4Q EPS of -$0.27, due to Mark-to-Market Pension Charge
  • Adjusted 4Q EPS of $1.63, Driven by International Segment
  • 2016 EPS of $3.87; Adjusted 2016 EPS of $5.75
  • Company Produces $6.5 Billion in Cash from Operations in 2016
  • Announces Full-Year 2017 Adjusted EPS Guidance

UPS (NYSE:UPS) today announced fourth-quarter 2016 operating results.  “Revenue and volume growth accelerated for UPS during the holiday season and we provided high service levels for our customers,” said David Abney, UPS chairman and CEO.  “The International segment delivered another extraordinary performance, while the U.S. managed through considerable changes in product mix.  Our strategies and initiatives are creating long-term value for both UPS customers and shareowners.”

Consolidated Results

4Q 2016

Adjusted
4Q 2016

4Q 2015

Adjusted
4Q 2015

Revenue

$16,931 M

 

$16,054 M

 

Operating profit (loss)

$(428) M

$2,223 M

$2,051 M

$2,169 M

Diluted earnings (loss) per share

$(0.27)

$1.63

$1.48

$1.57

Full-year and fourth-quarter 2016 results include a non-cash, after-tax, mark-to-market pension charge of $1.90 per diluted share.  In the prior-year period, the company reported non-cash, after-tax charges of $0.09 per diluted share related to pension mark-to-market charges.

  • 4Q 2016 diluted EPS of -$0.27; adjusted diluted EPS of $1.63.
  • Adjusted diluted EPS excludes the impact of non-cash, mark-to-market pension charge.
  • During the quarter, the company delivered 1.4 billion packages, up 7.1% over last year.

U.S. Domestic Segment

4Q 2016

Adjusted
4Q 2016

4Q 2015

Adjusted
4Q 2015

Revenue

$10,913 M

 

$10,265 M

 

Operating profit (loss)

$(570) M

$1,338 M

$1,284 M

$1,346 M

  • Revenue increased $648 million to $10.9 billion, a 6.3% increase over 4Q15.
  • Average daily shipments increased 5.0% to 19.6 million.
  • 4Q 2016 operating loss of $570 million; adjusted operating profit was $1.3 billion.
  • Adjusted operating profit excludes the mark-to-market pension charge.
  • Benefits from ORION and automation initiatives offset most of the impact from the faster pace of residential and SurePost growth.  

International Segment

4Q 2016

Adjusted
4Q 2016

4Q 2015

Adjusted
4Q 2015

Revenue

$3,335 M

 

$3,175 M

 

Operating profit

$281 M

$706 M

$580 M

$624 M

  • International segment produced strong volume growth across all major products.
  • Revenue increased 5.0%, driven by an 8.4% jump in daily Export shipments.
  • Currency-neutral revenue increased 6.2% over the prior year.
  • 4Q 2016 operating profit was $281 million; adjusted operating profit was $706 million.
  • Adjusted operating profit excludes the mark-to-market pension charge.

Supply Chain & Freight

4Q 2016

Adjusted
4Q 2016

4Q 2015

Adjusted
4Q 2015

Revenue

$2,683 M

 

$2,614 M

 

Operating profit (loss)

$(139) M

$179M

$187 M

$199 M

  • Revenue increased 2.6% over 4Q15, to $2.7 billion.
  • 4Q 2016 operating loss of $139 million; adjusted operating profit was $179 million.
  • Adjusted operating profit excludes the mark-to-market pension charge.

Full-year 2016 Consolidated Results

  • Full-year 2016 diluted EPS of $3.87; adjusted diluted EPS was $5.75.
  • Adjusted diluted EPS excludes the impact of non-cash, mark-to-market pension charge.
  • Generated $6.5 billion in cash from operations. 
  • Company made capital expenditures of nearly $3.0 billion during the year.
  • Paid dividends of $2.8 billion, an increase of 6.8% per share over the prior year. 
  • Repurchased 25.5 million shares for approximately $2.7 billion.

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, which would be included in reported (GAAP) results and could be material.

“The investments in ORION and automation provided benefits during the quarter,” said Richard Peretz, UPS chief financial officer.  “However, bottom-line results were challenged by a shift in product mix and the continued softness in industrial production.  Strong growth, combined with our network investments, provide UPS with great opportunities for many years to come.”

  • UPS expects 2017 adjusted diluted EPS to be $5.80 to $6.10, which includes $400 million of pre-tax currency headwinds.   
  • Further, the currency drag lowers the adjusted diluted EPS by $0.30 in 2017, and decreases the EPS growth rates by approximately 500 basis points.

Conference Call Information

UPS CEO David Abney and CFO Richard Peretz will discuss fourth-quarter results with investors and analysts during a conference call at 8:30 a.m. ET, January 31, 2017.  That call is open to others through a live Webcast.  To access the call, go to www.investors.ups.com and click on “Earnings Webcast.”

UPS (NYSE: UPS) is a global leader in logistics, offering a broad range of solutions including the transportation of packages and freight; the facilitation of international trade, and the deployment of 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® and its corporate blog can be found at Longitudes.ups.com. To get UPS news directly, visit pressroom.ups.com/RSS.


Forward-Looking Statements

Except for historical information contained herein, the statements made in this release constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements, including statements regarding the intent, belief or current expectations of UPS and its management regarding the company's strategic directions, prospects and future results, involve certain risks and uncertainties.

Certain factors may cause actual results to differ materially from those contained in the forward-looking statements, including economic and other conditions in the markets in which we operate, governmental regulations, our competitive environment, negotiation and ratification of labor contracts, strikes, work stoppages and slowdowns, changes in aviation and motor fuel prices, cyclical and seasonal fluctuations in our operating results, and other risks discussed in the company's Form 10-K and other filings with the Securities and Exchange Commission, which discussions are incorporated herein by reference.

Reconciliation of GAAP and non-GAAP Financial Measures

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 currency-neutral revenue and revenue per piece.

We believe that these non-GAAP measures provide additional meaningful information to assist users of our financial statements in understanding our financial results and assessing our ongoing performance because they exclude items that may not be indicative of, or are unrelated to, our underlying operations and may provide a useful baseline for analyzing trends in our underlying businesses. Management uses these non-GAAP financial measures in making financial, operating and planning decisions. We also use certain of these measures for the determination of incentive compensation award results.

Non-GAAP financial measures should be considered in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. Our non-GAAP financial information does not represent a comprehensive basis of accounting. Therefore, our non-GAAP financial information may not be comparable to similarly titled measures reported by other companies.

Mark-To-Market Pension and Post-Retirement Adjustments

We recognize changes in the fair value of plan assets and net actuarial gains and losses in excess of a 10% corridor for company-sponsored pension and post-retirement liabilities immediately as part of net periodic benefit cost. We supplement the presentation of our operating profit, operating margin, pre-tax income, net income and earnings per share with similar non-GAAP measures that exclude the impact of the portion of net periodic benefit cost represented by the gains and losses recognized in excess of the 10% corridor and the related income tax effects.

This adjusted net periodic benefit cost is comparable to the accounting for our defined benefit plans in our quarterly reporting under U.S. GAAP, and reflects assumptions utilizing the expected return on plan assets ($2,580 million in 2016 and $2,567 million in 2015)  and the discount rate used for determining net periodic benefit cost (the non-adjusted net periodic benefit cost reflects the actual return on plan assets($1,846 million in 2016 and $110 million in 2015)  and the discount rate used for measuring the projected benefit obligation). We believe this adjusted net periodic benefit cost provides important supplemental information that reflects the anticipated long-term cost of our defined benefit plans, and provides a benchmark for historical defined benefit cost trends that may provide useful comparison of year-to-year financial performance without considering the short-term impact of changes in market interest rates, equity prices, and similar factors.

The deferred income tax effects of these mark-to-market pension and postretirement adjustments are calculated by multiplying the statutory tax rates applicable in each tax jurisdiction, including the U.S. federal jurisdiction and various U.S. state and non-U.S. jurisdictions, by the adjustments. The blended average of the applicable statutory tax rates in 2016 and 2015 were 36.9% and 33.1%, respectively.

Weighted-Average Shares Outstanding and Diluted Earnings per Share

The computation of weighted-average shares outstanding and diluted earnings per share for the fourth quarter of 2016 excludes the effect of certain incentive compensation awards because they were anti-dilutive in consideration of our reported net loss. Adjusted diluted earnings per share for this period includes the dilutive effect of these same shares because we are reporting adjusted net income after excluding the mark-to-market pension and postretirement adjustment.

Currency-Neutral Revenue and Revenue per Piece

We supplement the reporting of our revenue and revenue per piece with similar non-GAAP measures that exclude the period-over-period impact of foreign currency exchange rate changes and hedging activities. We believe currency-neutral revenue and revenue per piece information allows users of our financial statements to understand growth trends in our products and results. We evaluate the performance of our International Package business on a currency-neutral basis.

Currency-neutral revenue and revenue per piece are calculated by multiplying prior period reported U.S. dollar revenue and revenue per piece by the prior period average exchange rates to derive prior period local currency revenue and revenue per piece. The derived prior period local currency revenue and revenue per piece are then divided by the average foreign currency exchange rates used to translate the company's financial statements in the comparable current year. The difference between the prior period reported U.S. dollar revenue and revenue per piece and the derived prior period U.S. dollar revenue and revenue per piece (including the impact of current period foreign currency hedging activities) is added to the current period reported U.S. dollar revenue and revenue per piece to derive current period currency-neutral U.S. dollar revenue and revenue per piece.

Free Cash Flow

We supplement the reporting of cash flows from operating activities with free cash flow, a non-GAAP liquidity measure. We believe free cash flow is an important indicator of how much cash is generated by regular business operations and we use it as a measure of incremental cash available to invest in our business, meet our debt obligations and return cash to shareowners. We calculate free cash flow as cash flows from operating activities less capital expenditures, proceeds from disposals of property, plant and equipment, and plus or minus the net changes in finance receivables and other investing activities.

Reconciliation of GAAP and non-GAAP Income Statement Data (in millions, except EPS amounts):

Three Months Ended December 31, 2016

 

 

 

 

 

 

 

 

As-Reported (GAAP
Measure)

Defined Benefit Plans MTM Charges

As-Adjusted (non-GAAP Measure)

 

Operating profit (loss):

 

 

 

 

 

    U.S. Domestic Package

 

$   (570)

$  1,908

$   1,338

 

    International Package

 

281

425

706

 

    Supply Chain & Freight

 

(139)

318

179

 

       Total operating profit

 

$   (428)

$  2,651

$   2,223

 

 

 

 

 

 

 

Income Taxes

 

$   (277)

$     978

$      701

 

 

 

 

 

 

 

Net income

 

$   (239)

$  1,673

$   1,434

 

 

 

 

 

 

 

Diluted weighted avg. shares

 

876

5

881

 

 

 

 

 

 

 

Diluted earnings per share

 

$  (0.27)

$    1.90

$     1.63

 

 

 

 

 

 

 

Three Months Ended December 31, 2015

 

 

 

 

 

 

 

 

As-Reported (GAAP
Measure)

Defined Benefit Plans MTM Charges

As-Adjusted (non-GAAP Measure)

 

Operating profit:

 

 

 

 

 

    U.S. Domestic Package

 

$  1,284

$     62

$   1,346

 

    International Package

 

580

44

624

 

    Supply Chain & Freight

 

187

12

199

 

       Total operating profit

 

$  2,051

$   118

$   2,169

 

 

 

 

 

 

 

Income Taxes

 

$     638

$     39

 $      677

 

 

 

 

 

 

 

Net income

 

$  1,331

$     79

$   1,410

 

 

 

 

 

 

 

Diluted earnings per share

 

$    1.48

$  0.09

$     1.57

 

Reconciliation of GAAP and non-GAAP Income Statement Data (in millions, except EPS amounts):

Year Ended December 31, 2016

 

 

 

 

 

 

 

 

As-Reported (GAAP
Measure)

Defined Benefit Plans MTM Charges

As-Adjusted (non-GAAP Measure)

 

Operating profit:

 

 

 

 

 

    U.S. Domestic Package

 

$  3,017

$  1,908

$  4,925

 

    International Package

 

2,044

425

2,469

 

    Supply Chain & Freight

 

406

318

724

 

       Total operating profit

 

$  5,467

$  2,651

$  8,118

 

 

 

 

 

 

 

Income Taxes

 

$   1,705

$     978

$      2,683

 

 

 

 

 

 

 

Net income

 

$  3,431

$  1,673

$   5,104

 

 

 

 

 

 

 

Diluted earnings per share

 

$  3.87

$    1.88

$     5.75

 

 

 

 

 

 

 

Year Ended December 31, 2015

 

 

 

 

 

 

 

 

As-Reported (GAAP
Measure)

Defined Benefit Plans MTM Charges

As-Adjusted (non-GAAP Measure)

 

Operating profit:

 

 

 

 

 

    U.S. Domestic Package

 

$  4,767

$     62

$   4,829

 

    International Package

 

2,137

44

2,181

 

    Supply Chain & Freight

 

764

12

776

 

       Total operating profit

 

$  7,668

$   118

$   7,786

 

 

 

 

 

 

 

Income Taxes

 

$     2,498

$     39

 $      2,537

 

 

 

 

 

 

 

Net income

 

$  4,844

$     79

$   4,923

 

 

 

 

 

 

 

Diluted earnings per share

 

$    5.35

$  0.08

$     5.43

 

Note: Certain amounts may not compute due to rounding.

Reconciliation of GAAP and non-GAAP Revenue and Revenue per Piece (in millions, except per Piece amounts):

Three Months Ended December 31

 

2016 As-Reported (GAAP)

2015 As-Reported (GAAP)

% Change (GAAP)

Currency Impact

2016 Currency-Neutral (non-GAAP)

% Change (non-GAAP)

Revenue:

 

 

 

 

 

 

    U.S. Domestic Package

$10,913

$10,265

6.3%

             $  -

$10,913

6.3%

    International Package

3,335

3,175

5.0%

38

3,373

6.2%

    Supply Chain & Freight

2,683

2,614

2.6%

16

2,699

3.3%

       Total revenue

$16,931

$16,054

5.5%

$54

$16,985

5.8%

 

 

 

 

 

 

 

Average Revenue Per Piece:

 

 

 

 

 

 

    International Package:

 

 

 

 

 

 

       Domestic

$5.57

$5.93

-6.1%

$0.25

$5.82

-1.9%

       Export

29.50

30.38

-2.9%

0.10

29.60

-2.6%

          Total International Package

$15.90

$16.37

-2.9%

$0.19

$16.09

-1.7%

 

 

 

 

 

 

 

   Consolidated

$9.85

$9.93

-0.8%

$0.02

$9.87

-0.6%

 

 

 

 

 

 

 

Year Ended December 31

 

2016 As-Reported (GAAP)

2015 As-Reported (GAAP)

% Change (GAAP)

Currency Impact

2015 Currency-Neutral (non-GAAP)

% Change (non-GAAP)

Revenue:

 

 

 

 

 

 

    U.S. Domestic Package

$38,301

$36,747

4.2%

        $   -

$38,301

4.2%

    International Package

12,350

12,149

1.7%

138

12,488

2.8%

    Supply Chain & Freight

10,255

9,467

8.3%

56

10,311

8.9%

       Total revenue

$60,906

$58,363

4.4%

$194

$61,100

4.7%

 

 

 

 

 

 

 

Average Revenue Per Piece:

 

 

 

 

 

 

    International Package:

 

 

 

 

 

 

       Domestic

$5.85

$6.06

-3.5%

$0.23

$6.08

0.3%

       Export

30.38

31.10

-2.3%

0.15

30.53

-1.8%

          Total International Package

$16.29

$16.63

-2.0%

$0.19

$16.48

-0.9%

 

 

 

 

 

 

 

   Consolidated

$10.30

$10.37

-0.7%

$0.02

$10.32

-0.5%

Note: Certain amounts may not compute due to rounding.

Reconciliation of GAAP and non-GAAP Liquidity Measures (in millions)

 

 

Year Ended December 31

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

 

 

2016

Cash flows from operating activities

$ 6,473

Cash flows from investing activities

(2,566)

Cash flows from financing activities

(3,140)

Effect of exchange rate changes on cash and cash equivalents

(21)

Net increase in cash and cash equivalents

$    746

 

 

Reconciliation of Free Cash Flow (non-GAAP measure)

 

 

 

2016

 

 

Cash flows from operating activities (GAAP)

$ 6,473

Capital expenditures

(2,965)

Proceeds from disposals of PP&E

88

Net change in finance receivables

9

Other investing activities

(59)

   Free Cash Flow (non-GAAP Measure)

$ 3,546

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