Operating Profit Up More Than 20%, with Margin Expansion in All Segments
· 3Q19 EPS of $2.01, Up More Than 16%; Adjusted* EPS Up 13.7% to $2.07
· U.S. Daily Volume Grew Above 9%; Next Day Air Volume Jumped Nearly 24%
· U.S. Operating Profit Rose Over 28%; Grew Nearly 26% on an Adjusted Basis
· Positive Operating Leverage in U.S. Driven by Lower Unit Cost
· International Operating Profit Up 24.4%; and 20.3% on an Adjusted Basis
· Supply Chain and Freight Operating Margin of 7.3%; Adjusted Margin of 7.6%
· Reaffirms 2019 Adjusted EPS and Raises Adjusted FCF Target to Over $4.0B
ATLANTA – UPS (NYSE:UPS) today announced third-quarter 2019 adjusted earnings per share of $2.07, a 13.7% increase over the same period last year. The company delivered strong operating profit growth of more than 20%, led by the U.S. Domestic and International segments. U.S. Domestic performed exceptionally well year-over-year, with volume gains across all products.
“Our results reflect significant progress from our transformation initiatives, and our ability to generate growth and deliver increased efficiencies in a dynamic economic environment,” said David Abney, UPS chairman and CEO. “As we recently announced, we continue to forge new partnerships and create innovative solutions to accelerate growth in the most attractive opportunities.”
Transformation strategy costs are excluded from adjusted results. Adjusted third-quarter 2019 results exclude a pre-tax transformation charge of $63 million, or $0.06 per diluted share after tax. Adjusted third-quarter 2018 results excluded a pre-tax transformation charge of $97 million, or $0.09 per share after tax.
|Diluted Earnings Per Share|
* “Adjusted” and amounts presented in this release are non-GAAP financial measures. See the appendix to this release for a discussion of non-GAAP financial metrics, including a reconciliation to the most closely correlated GAAP measure.
For the total company in 3Q 2019:
· Consolidated revenue increased 5% to $18.3 billion, driven by strong average daily volume growth in the U.S.
· Total operating profit growth was very strong at more than 23%, and 20.1% on an adjusted basis, led by the U.S. Domestic and International segments.
· Total operating margin expanded 170 basis points**; adjusted operating margin expanded 150 basis points.
· Adjusted capital expenditures for the year are approximately $4.5 billion to support network enhancements.
· Year-to-date cash from operations was $5.7 billion and adjusted free cash flow grew to $3.2 billion.
· Dividends per share increased 5.5%, and the company repurchased 7 million shares for approximately $753 million year-to-date.
U.S. Domestic Segment
In the U.S. Domestic segment, total volume across all products grew more than 9%. Next Day Air increased nearly 24%; Deferred Air grew more than 17%; and Ground volume rose nearly 7%. Growth came from both B2C and B2B shippers, led by the retail, healthcare and high-tech sectors.
“The investments we are making in new facilities and automation in our network, coupled with solid execution of our strategies, are producing strong results, including strong, positive operating leverage,” said Abney. “We see significant near-term benefits to both top- and bottom-line results in the U.S. and continued momentum into the future.”
· Revenue grew more than $1 billion, a nearly 10% increase.
· Operating profit increased 28.1%, and nearly 26% on an adjusted basis.
· Operating margin was 10.6%; adjusted operating margin expanded 130 basis points.
· Unit costs were lower by 2.7%; on an adjusted basis, down 2.5%, contributing to positive operating leverage.
The International segment reported strong operating profit and expanded operating margin. The company’s performance is the result of a number of items in the quarter, including strong cost control, good execution and targeted domestic and export growth.
· International saw export volume growth on intra-European trade lanes and virtually all Asia trade lanes except Asia-U.S.
**One basis point equals one-hundredth of a percentage point.
· International domestic revenue per piece fell less than 1%, but grew 2.3% when adjusting for currency.
· Operating profit increased more than 24%, or by 20.3% on an adjusted basis.
· Industry-leading operating margin remained strong at 19.1%; adjusted operating margin expanded 320 basis points**.
Supply Chain and Freight Segment
The Supply Chain and Freight segment’s performance was driven by small and medium-sized customers that generate higher-quality revenue, as well as cost management actions throughout the network.
· Operating margin expanded to 7.3%, and to 7.6% on an adjusted basis.
· Logistics revenue increased more than 7% from growth in the healthcare, retail and manufacturing sectors.
· UPS Freight produced an increase in revenue per LTL (less-than-truckload) hundredweight of nearly 4%, driven by its focus on small and medium-sized businesses.
· The Forwarding unit adjusted costs and partially offset the negative revenue impact of trade uncertainty.
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 delivered solid performance for the third quarter,” said Brian Newman, UPS’s chief financial officer. “Positive impacts from our transformation initiatives are visible in our results as we continue to improve network efficiencies and create new solutions that will open more growth opportunities well into the future.”
· The company reaffirms full-year adjusted diluted EPS in the range of $7.45 to $7.75.
· Guidance assumes no further deterioration regarding global trade uncertainty or U.S. industrial weakness.
· Adjusted free cash flow for the year is projected to be over $4.0 billion.
· Capital investments have been reduced in both 2019 and 2020 by about $500 million each year. Network automation targets and other transformation goals remain unchanged.
· The effective tax rate for the full year 2019 is estimated to be between 22% and 23%.
· Transformation charges are not included in the adjusted guidance.
**One basis point equals one-hundredth of a percentage point.
Conference Call Information
UPS CEO David Abney, CFO Brian Newman and former CFO Richard Peretz will discuss third-quarter results with investors and analysts during a conference call at 8:30 a.m. ET, October 22, 2019. That call will be open to others through a live Webcast. To access the call, go to www.investors.ups.com and click on “Earnings Webcast.” Additional financial information is included in the detailed financial schedules being posted on www.investors.ups.com under “Financials” and as filed with the SEC as an exhibit to our Current Report on Form 8-K.