UPS Releases 2nd Quarter Results
Second Half 2013 EPS Growth Expected at 4-13%
UPS today released additional details regarding second quarter 2013 results. Total revenue increased 1.2% as daily International package volume improved 5% and U.S. Domestic grew 1.9%. Diluted earnings per share were $1.13, down slightly compared to the prior-year period.
As previously reported, UPS expects 2013 adjusted diluted earnings per share to be in a range of $4.65 to $4.85, compared to $4.53 the prior year. The company anticipates EPS growth of 4-13% for the second half of the year.
“Market conditions and shipper preferences clearly impacted our freight forwarding and International business,” said Scott Davis, UPS’s chairman and CEO. “UPS is adapting to these conditions to ensure we deliver a solid second half.”
Consolidated Results 2Q 2013 2Q 2012
Revenue $13.51 B $13.35 B
Operating profit $1.74 B $1.79 B
Operating margin 12.9 % 13.4 %
Average volume per day 15.7 M 15.4 M
Diluted earnings per share $1.13 $1.15
For the three months ended June 30, 2013, UPS delivered 15.7 million packages per day, an increase of 2.3% over the prior-year period.
For the six months ended June 30, UPS generated $2.5 billion in free cash flow after capital expenditures of $990 million. UPS paid dividends of $1.1 billion, an increase of nearly 9% per share over the prior year, and repurchased 21.8 million shares for $1.8 billion.
U.S. Domestic Package 2Q 2013 2Q 2012
Revenue $8.24 B $8.06 B
Operating profit $1.13 B $1.13 B
Operating margin 13.7 % 14.1 %
Average volume per day 13.33 M 13.08 M
U.S. Domestic second quarter revenue improved to $8.24 billion, up 2.3%. Operating profit was relatively flat compared to last year. Operating margin was 13.7%, down slightly due to changes in customer and product mix along with higher pension costs and challenging year-over-year comparisons from the timing of fuel surcharges.
Total U.S. Domestic revenue per piece was up 0.3%, as base rate improvements were offset by significantly lower fuel surcharges, decreased average weight and changes in mix.
Daily package volume improved 1.9% compared to the same period last year, driven by residential shipments from e-commerce customers. Contraction in letter volume led to the 1.5% decline in Next Day Air®. Additionally, UPS volume growth was delayed by ongoing labour negotiations.
On June 25th, UPS received majority approval from the Teamsters on the National Master Agreement. For the local supplements that remain open, and UPS Freight, the company and the Teamsters have agreed to contract extensions.
International Package 2Q 2013 2Q 2012
Revenue $3.06 B $3.01 B
Operating profit $451 M $454 M
Operating margin 14.7 % 15.1 %
Average volume per day 2.40 M 2.28 M
International daily package volume improved 5.0% and revenue increased 1.6% to $3.06 billion. Daily Export shipments increased 5.0%, with Europe and Asia leading the way. Non-U.S. Domestic volume was up 5.1% compared to the prior year period.
Customers continue to trade down to slower moving solutions resulting in a 3.4% decline in export revenue per piece, on a currency neutral basis. Lower fuel surcharges and customer mix also pressured yields.
Operating profit was $451 million. Though operating margin declined 40 basis points to 14.7%, it remained industry-leading. Year-over-year changes in currency and fuel, as well as increased customer preference for non-premium products pressured operating margin.
Supply Chain & Freight 2Q 2013 2Q 2012
Revenue $2.20 B $2.28 B
Operating profit $159 M $202 M
Operating margin 7.2 % 8.9 %
Revenue in the segment was $2.20 billion, down 3.2%. Operating profit dropped to $159 million with an operating margin of 7.2%. The revenue and operating profit declines were primarily due to the Forwarding business unit.
Forwarding results remained under pressure as tonnage declined and yields were negatively impacted by lower demand in trans-Pacific trade lanes. Lower operating costs could not offset these headwinds.
UPS Freight revenue improved, however, operating profit and margin declined slightly, due to increases in compensation and benefit expense.
Distribution revenue was up mid-single digits. Growth from healthcare customers was offset by declines in high-tech. Margin expansion was limited by investment in technology and infrastructure to support the growing healthcare sector.
During the quarter UPS opened new dedicated healthcare distribution facilities in Louisville, Ky., and Hangzhou, China. These state-of-the-art buildings bring UPS total healthcare space to approximately 595,000 square metres worldwide.
“UPS second quarter results were below our expectations as a result of disappointing performance in freight forwarding and a slight miss in International package” said Kurt Kuehn, UPS chief financial officer. “Going forward, UPS is focused both on our long-term strategy and adapting to changing market conditions.
“Looking toward the back half of the year, although global economic expectations have been lowered, UPS expects growth in adjusted diluted earnings per share of 4-13% over the same period last year,” Kuehn concluded.