UPS announced first-quarter 2019 earnings strengthened by higher-quality revenue and benefits from investments in its global network. First-quarter adjusted results exclude a pre-tax charge of $123 million, or $0.11 per share after tax, due to Transformation-related charges.  These projects will create efficiencies across the enterprise and produce higher-quality revenue growth.    

“The first quarter marked a good start to the year, as we executed against our strategy and generated solid performance across our business,” said David Abney, UPS chairman and CEO. “Our Transformation initiatives are enhancing revenue quality and creating network efficiencies that will increase our long-term earnings power. We are on a path to take advantage of growth opportunities and enhance our future performance.”

For the total company in 1Q 2019:

Consolidated revenue increased to $17.2 billion, driven by gains in average daily volume and higher-quality revenue.

Results reflect the impact of severe winter weather in the U.S. 

Additionally, there was one less operating day in the quarter than a year ago, and an impact of Easter moving to mid-April.

Capital expenditures were $1.5 billion to support network enhancements.

UPS continued to reward shareowners with strong dividend yields, paying dividends of $867 million, an increase of 5.5% per share over the prior-year period.

The company repurchased 2.4 million shares for approximately $250 million.

U.S. Domestic Segment

U.S. Domestic continued a positive trend, increasing business-to-business volume once again this quarter. Additionally, investments in new automated hubs contributed to improvements in operational measures including productivity gains and slower growth in unit costs.

“We are bending the cost curve in our U.S. Domestic segment as highly automated hubs come online, producing improved productivity benefits,” said Abney. “These improvements contributed to the segment’s performance in the quarter and will continue to gain momentum going forward.”

For the U.S. Domestic segment in 1Q 2019:

Revenue increased $253 million or 2.5% over 1Q 2018, with healthy growth in commercial Ground. 

Growth in Ground revenue per piece was strong at 2.9% led by gains from healthcare, manufacturing and e-commerce.

Average daily volume for air products grew nearly 8%, driven by high demand for faster delivery options.

Adjusted operating profit excludes Transformation-related charges of $28 million as we streamline and standardize our processes.

Domestic operating profit includes a drag of about $80 million due to severe winter weather during all months of the quarter.

International Segment

The International segment reported record first-quarter operating profit, reflecting the strength and flexibility of the company’s global network and its ability to execute in a changing global trade environment. Operating margin was 15.3% and 17.7% on an adjusted basis. The adjusted margin expanded 90 basis points+ over the prior period. 

For the International segment in 1Q 2019:

Revenue per piece was lower by 1.2%; when adjusting for currency, it increased by 2.3%, led by a 3.9% gain in domestic products.

Operating profit was $528 million; on an adjusted basis, the segment produced $612 million in profit.

Disciplined yield management, coupled with growth from middle market B2B customers, contributed to gains in revenue quality.

High growth in export average daily volume in the prior-year period created tough comparisons. On a two-year stack basis, International exports achieved volume growth of nearly 12%, led by Europe and the Americas.

Adjusted operating profit excludes Transformation-related charges of $84 million for global realignment of systems and resources.

Supply Chain and Freight Segment

Supply Chain and Freight produced strong profit growth in the quarter. The segment also expanded operating margins, driven by disciplined cost-management initiatives and the flexibility of the network to adapt to changing market conditions.

“Supply Chain and Freight generated excellent operating profit this quarter, with strong contributions from Coyote and the rest of our Forwarding unit,” said Abney. “We continue to execute our asset-light strategies, while providing our customers with the high-quality service they expect.”

For the Supply Chain and Freight segment in 1Q 2019:

The segment generated strong growth in operating profit of $200 million and adjusted operating profit of $211 million, a more than 24% increase over the first quarter of 2018.

Cost management actions helped balance market changes to volume and revenue, and enabled profit momentum, most notably in Coyote.

International Air and Ocean Freight made significant contributions to operating profit growth as a result of greater alignment with small and medium-sized customers. UPS Freight increased revenue per LTL (less-than-truckload) hundredweight by 5.4% through revenue-quality initiatives and growth in the middle-market segment.

Adjusted operating profit excludes Transformation-related charges of $11 million to optimize back-office support.

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.

“Transformation is creating a firm foundation for performance well into the future,” said Richard Peretz, UPS’s chief financial officer. “Our strategies and initiatives are driving additional network efficiency and flexibility, and we remain confident in achieving our targets for the year.”

The company reaffirms 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 2019 is estimated to be between 23% and 24%.

In the second quarter, we will open about 30% of our planned 2019 capacity; no facilities were opened during the same period last year. Thus onboarding costs will weigh on the second-quarter results.

Overall operating profit in the second quarter is expected to grow. Adjusted EPS is anticipated to be relatively flat to last year driven by planned pension financing costs.

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-related charges and pension MTM are not included in the adjusted guidance.

^ “Adjusted” and “as adjusted” 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.
+One basis point equals one-hundredth of a percentage point.