UPS reports earnings and revenue below analysts' forecasts as severe winter weather puts a dent in its delivery business. United Parcel Service (UPS) - Get Report on Thursday reported earnings and revenue below analysts' forecasts as severe winter weather in the U.S. put a dent in its delivery business. "Big Brown" posted adjusted net income of $1.2 billion, or $1.39 a share, vs. $1.4 billion, or $1.55 a share, in the comparable year-earlier period. Analysts polled by FactSet had been expecting earnings of $1.42 a share. The tough winter affected profit by about $80 million, or 7 cents a share, the company said in its earnings statement. Revenue was roughly the same as the year-earlier quarter: $17.16 billion vs. $16.11 billion. Shares of UPS slid 8.7% to $104.48 in trading on Thursday. On a conference call with analysts, the company warned that second-quarter adjusted earnings per share will be "relatively flat" compared with the $1.94 of a year earlier. That's below analysts' prediction of $2.02. However, it did reaffirm its guidance going forward, reiterating its earlier 2019 per-share adjusted earnings forecast of between $7.45 and $7.75. That estimate includes pension financing cost headwinds of about $325 million, the company said. The current median forecast of analysts surveyed by FactSet is for full-year adjusted earnings of $7.52. "Transformation is creating a firm foundation for performance well into the future," UPS CFO Richard Peretzsaid in a statement. "Our strategies and initiatives are driving additional network efficiency and flexibility, and we remain confident in achieving our targets for the year."<doc-sep>A previous version of this report misstated the income in the most recent quarter and year-over-year. It has been corrected. United Parcel Service Inc. UPS, +1.10% stock fell 2.8% in Thursday premarket trading after the shipping company reported first-quarter earnings and sales that missed expectations. Net income was $1.11 billion, or $1.28 per share, slipping from $1.35 billion, or $1.55 per share, in 2018. Adjusted EPS was $1.39. Revenue of $17.16 billion, was up slightly from $17.11 billion last year. The FactSet consensus was for EPS of $1.42 and sales of $17.77 billion. UPS said the weather hurt U.S. profit by 7 cents per share. UPS continues to guide for full-year adjusted EPS in the range of $7.45 to $7.75 against a FactSet consensus of $7.52. UPS stock has gained 17.3% for the year to date while the S&P 500 index SPX, +0.19% is up 16.8% for the period.<doc-sep>Transformation Improves Efficiency and Revenue Quality 1Q19 EPS of $1.28; 1Q19 Adjusted ^ EPS of $1.39 Weather Lowered U.S. Profit by about $80M or $0.07 EPS U.S. Daily Air Volume Rose Nearly 8%; Growth Across All Products U.S. Revenue Yields Up, Led by Ground Products Supply Chain and Freight Operating Profit Up Nearly 18%; Adjusted Operating Profit Increased More Than 24% International Operating Margin of 15.3%; Adjusted Operating Margin of 17.7% Cash from Operations of $2.3B; Free Cash Flow about $760M UPS reaffirms adjusted diluted EPS in the range of $7.45 to $7.75 ATLANTA, April 25, 2019 (GLOBE NEWSWIRE) -- UPS (UPS) today 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.” Consolidated Results 1Q 2019* Adjusted 1Q 2019* 1Q 2018 Revenue $17,160 M $17,113 M Net Income $1,111 M $1,204 M $1,345 M Diluted Earnings Per Share $1.28 $1.39 $1.55 *2019 reflects one less operating day 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. ^ “ 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. Story continues 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.” 1Q 2019* Adjusted 1Q 2019* 1Q 2018 Revenue $10,480 M $10,227 M Operating profit $666 M $694 M $756 M *2019 reflects one less operating day 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. 1Q 2019 Adjusted 1Q 2019 1Q 2018 Revenue $3,459 M $3,533 M Operating profit $528 M $612 M $594 M + One basis point equals one-hundredth of a percentage point. 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.” 1Q 2019 Adjusted 1Q 2019 1Q 2018 Revenue $3,221 M $3,353 M Operating profit $200 M $211 M $170 M 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<doc-sep>Text size United Parcel Service is scheduled to report first-quarter earnings on Thursday, before the market opens. UPS stock (ticker: UPS) was up 16.5% this year through Tuesday’s close, just short of the 17% gain for the S&P 500. The stock os up 4.5% in the last 12 months. Here’s a snapshot of Wall Street’s expectations and some recent history. • Analysts have an average rating of Overweight, according to FactSet. Out of 26 analyst ratings FactSet lists, there are nine Buy ratings, one Overweight, 15 Holds, and one Sell. Wall Street’s consensus earnings estimate for UPS this quarter is $1.42 per share. The Street expects first-quarter revenue of 17.78 billion. • UPS stock saw gains at the end of January when the company reported fourth-quarter earnings of $1.94 per share, beating Wall Street consensus estimates of $1.91. Revenues rose 4.6% to $19.85 billion, slightly below the $19.99 billion average estimate on the Street. Margins rose above 20% in its international division, while domestic revenues climbed 6.3%. • President Donald Trump’s trade policies, along with Amazon.com’s (AMZN) own shipping efforts, have hurt the logistics industry. Trump said earlier this month that he and President Xi Jinping of China are “rounding the turn” on a potential trade deal that could give stocks like UPS a much-needed boost. • UPS hiked its quarterly dividend in February by 5.5%, from 91 cents per share to 96 cents. The forward yield at the time was about 3.5%. The company has regularly increased its quarterly dividend, which was 17 cents per share in 2000. • UPS stock rose on April 1, after Berenberg analyst Joel Spungin upgraded his rating of UPS from Hold to Buy. He wrote that UPS’s free-cash flow guidance “looks cautious,” and “management is increasingly optimistic on margin upside... in both US and International operations.” He also downgraded his rating of its rival FedEx stock (FDX) to Hold, saying FedEx’s ground-shipping costs “mean margin improvement will take longer to come through.”<doc-sep>
Text size United Parcel Service earned less than Wall Street expected in the first quarter, saying bad weather contributed to a shortfall that sent the stock lower in Thursday morning trading. The back story. UPS stock (ticker: UPS) was up 17.3% this year through Wednesday’s close, just beating the 16.8% gain for the S&P 500. The stock is up just 1% in the last 12 months. President Donald Trump’s trade policies, along with Amazon.com ’s (AMZN) own shipping efforts, have hurt logistics stocks like UPS. Trump said earlier this month that he and President Xi Jinping of China are “rounding the turn” on a potential trade deal that could give stocks like UPS a boost. What's new. UPS said it earned $1.28 per share, though that includes a pretax charge of $123 million, or 11 cents per share, linked to overhauls intended to produce higher-quality revenue growth. Adjusted EPS was $1.39, below the Wall Street consensus for a result of $1.42. Revenue was $17.16 billion, below estimates of $17.78 billion. “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.” UPS stock was down 6.8% in Thursday morning trading, to $106.56 per share. Looking ahead. UPS reaffirmed an earlier forecast that adjusted diluted EPS for 2019 will be between $7.45 and $7.75. According to the company, severe weather throughout the quarter lowered its U.S. profit by about $80 million, or 7 cents per share. Another challenge, the U.S.’s trade war with China, could end during the second quarter if Trump and Xi can reach a deal soon. Write to Connor Smith at Connor.Smith@barrons.com