UPS Releases 3Q 2020 Earnings
- Consolidated Revenue Increased 15.9%; Growth Across All Segments
- Diluted EPS of
$2.24 , Up 11.4%; Adjusted* Diluted EPS Up 10.1% to$2.28 - YTD Cash from Operations of
$9.3B ; Adjusted Free Cash Flow of$5.9B
Diluted earnings per share was
“Our performance highlights the agility of our global integrated network amid the ongoing challenges of the pandemic. Our results were fueled by continued strong outbound demand from
3Q 2020 | Adjusted 3Q 2020 |
3Q 2019 | Adjusted 3Q 2019 |
|
Revenue | ||||
Operating profit |
- Average daily volume increased 13.8%, with growth across all products and continued elevated residential demand.
- Operating margin was 8.3%; adjusted operating margin was 8.6%.
International Segment
3Q 2020 | Adjusted 3Q 2020 |
3Q 2019 | Adjusted 3Q 2019 |
|
Revenue | ||||
Operating profit |
- Average daily volume grew 12.1%, with double-digit export volume growth globally and continued strong outbound demand from
Asia . - Operating margin was 23.6%; adjusted operating margin was 23.8%.
Supply Chain and Freight Segment
3Q 2020 | Adjusted 3Q 2020 |
3Q 2019 | Adjusted 3Q 2019 |
|
Revenue | ||||
Operating profit |
- Revenue increased 16.5%, driven by strong freight forwarding demand out of
Asia . - Operating margin was 7.6%; adjusted operating margin was 7.7%.
* “Adjusted” amounts are non-GAAP financial measures. See the appendix to this release for a discussion of non-GAAP financial measures, including a reconciliation to the most closely correlated GAAP measure.
Outlook
“Our Better, not Bigger approach had a positive impact on our performance in the quarter, specifically through the revenue-quality actions we’ve taken. Additionally, we recently launched new initiatives to further reduce our costs,” said
Contacts:
UPS Media Relations: 404-828-7123 or pr@ups.com
UPS Investor Relations: 404-828-6059 (option 2) or investor@ups.com
Conference Call Information
About
Forward-Looking Statements
This release, our Annual Report on Form 10-K for the year ended
From time to time, we also include forward-looking statements in other publicly disclosed materials. Such statements may relate to our intent, belief and current expectations about our strategic direction, prospects and future results, and give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any forward-looking statements because such statements speak only as of the date when made.
Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience, present expectations or anticipated results. These risks and uncertainties, many of which are outside of our control, include, but are not limited to: continued uncertainties related to the impact of the COVID-19 pandemic on our business and operations, financial condition, financial results and financial position, our customers and suppliers, and on the global economy; changes in general economic conditions, in the
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 "adjusted" compensation and benefits, operating profit, operating margin, other income (expense), income before income taxes, income tax expense, effective tax rate, net income and earnings per share. We also supplement the reporting of revenue, revenue per piece and operating profit with non-GAAP measures that exclude the period-over-period impact of foreign currency exchange rate changes and hedging activities. Additionally, we periodically disclose free cash flow, free cash flow excluding discretionary pension contributions, and capital expenditures including principal repayments of capital lease obligations. The equivalent measures determined in accordance with GAAP are also referred to as "reported" or "unadjusted.”
We believe that these non-GAAP measures provide additional meaningful information to assist users of our financial statements in understanding our financial results and cash flows 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. These non-GAAP measures are used internally by management for business unit operating performance analysis, business unit resource allocation and in connection with incentive compensation award determinations.
Costs Related to Restructuring Programs; Transformation Strategy Costs
Adjusted operating profit, operating margin, pre-tax income, net income and earnings per share exclude the impact of costs related to restructuring programs, including Transformation strategy costs.
Impact of Changes in Foreign Currency Exchange Rates and Hedging Activities
Currency-neutral revenue, revenue per piece and operating profit are calculated by dividing current period reported
Impact of Changes in Pension Discount Rates
Non-GAAP pension discount rate-neutral operating profit excludes the period over period impact of discount rate changes on pension service cost. Effective
Pension discount rate-neutral operating profit is calculated by discounting the value of benefits attributable to employee service in the current period utilizing the prior year discount rate applicable to each of our company-sponsored defined benefit plans. The difference between this derived amount and the current period reported service cost is the period over period impact of pension discount rate movements on operating profit.
Free Cash Flow and Adjusted Capital Expenditures
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. Free cash flow excluding discretionary pension contributions adds back any discretionary pension contributions made during the period. We believe free cash flow, free cash flow excluding discretionary pension contributions and free cash flow adjusted for principal repayments of finance lease obligations are important indicators of how much cash is generated by regular business operations and we use them as a measure of incremental cash available to invest in our business, meet our debt obligations and return cash to shareowners. Additionally, we believe that adjusting capital expenditures for principal repayments of finance lease obligations more appropriately reflects the overall cash that we have invested in capital assets.
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.
Reconciliation of GAAP and Non-GAAP Income Statement
(in millions, except per share amounts):
Three Months Ended |
||||||||||||
As-Reported (GAAP) | Transformation Strategy Costs (1) |
As-Adjusted (Non-GAAP) |
||||||||||
Operating profit: | ||||||||||||
$ | 1,098 | $ | 35 | $ | 1,133 | |||||||
International Package | 966 | 6 | 972 | |||||||||
Supply Chain & Freight | 299 | 3 | 302 | |||||||||
Total operating profit | $ | 2,363 | $ | 44 | $ | 2,407 | ||||||
Income before income taxes | $ | 2,525 | $ | 44 | $ | 2,569 | ||||||
Income tax expense | $ | 568 | $ | 11 | $ | 579 | ||||||
Net income | $ | 1,957 | $ | 33 | $ | 1,990 | ||||||
Diluted earnings per share | $ | 2.24 | $ | 0.04 | $ | 2.28 | ||||||
(1) Transformation costs of
Nine Months Ended |
||||||||||||
As-Reported (GAAP) | Transformation Strategy Costs (1) |
As-Adjusted (Non-GAAP) |
||||||||||
Operating profit: | ||||||||||||
|
$ | 2,644 | $ | 105 | $ | 2,749 | ||||||
International Package | 2,288 | 84 | 2,372 | |||||||||
Supply Chain & Freight | 715 | 12 | 727 | |||||||||
Total operating profit | $ | 5,647 | $ | 201 | $ | 5,848 | ||||||
Income before income taxes | $ | 6,132 | $ | 201 | $ | 6,333 | ||||||
Income tax expense | $ | 1,442 | $ | 50 | $ | 1,492 | ||||||
Net income | $ | 4,690 | $ | 151 | $ | 4,841 | ||||||
Diluted earnings per share | $ | 5.39 | $ | 0.17 | $ | 5.56 | ||||||
(1) Transformation costs of
Reconciliation of GAAP and Non-GAAP Revenue, Revenue Per Piece,
and Adjusted Operating Profit
(in millions, except per piece amounts):
Three Months Ended |
||||||||||||||||||||||||
2020 As- Reported (GAAP) |
2019 As- Reported (GAAP) |
% Change (GAAP) |
Currency Impact |
2020 Currency Neutral (Non-GAAP)(1) |
% Change (Non-GAAP) |
|||||||||||||||||||
Average Revenue Per Piece: | ||||||||||||||||||||||||
International Package: | ||||||||||||||||||||||||
Domestic | $ | 6.61 | $ | 6.45 | 2.5 | % | $ | (0.18 | ) | $ | 6.43 | (0.3 | ) | % | ||||||||||
Export | 28.98 | 29.06 | (0.3 | ) | % | (0.30 | ) | 28.68 | (1.3 | ) | % | |||||||||||||
Total International Package | $ | 17.37 | $ | 16.92 | 2.7 | % | $ | (0.23 | ) | $ | 17.14 | 1.3 | % | |||||||||||
Consolidated | $ | 11.06 | $ | 11.02 | 0.4 | % | $ | (0.03 | ) | $ | 11.03 | 0.1 | % | |||||||||||
Revenue: | ||||||||||||||||||||||||
$ | 13,225 | $ | 11,455 | 15.5 | % | $ | — | $ | 13,225 | 15.5 | % | |||||||||||||
International Package | 4,087 | 3,494 | 17.0 | % | (54 | ) | 4,033 | 15.4 | % | |||||||||||||||
Supply Chain & Freight | 3,926 | 3,369 | 16.5 | % | 8 | 3,934 | 16.8 | % | ||||||||||||||||
Total revenue | $ | 21,238 | $ | 18,318 | 15.9 | % | $ | (46 | ) | $ | 21,192 | 15.7 | % | |||||||||||
(1) Amounts adjusted for period over period foreign currency exchange rate and hedging differences
2020 As-Adjusted (Non-GAAP)(1) |
2019 As-Adjusted (Non-GAAP)(1) |
% Change (Non-GAAP) |
Currency Impact |
2020 As-Adjusted Currency Neutral (Non-GAAP)(2) |
% Change (Non-GAAP) |
|||||||||||||||||||
As-Adjusted Operating Profit: | ||||||||||||||||||||||||
$ | 1,133 | $ | 1,242 | (8.8 | ) | % | $ | — | $ | 1,133 | (8.8 | ) | % | |||||||||||
International Package | 972 | 693 | 40.3 | % | (7 | ) | 965 | 39.2 | % | |||||||||||||||
Supply Chain & Freight | 302 | 256 | 18.0 | % | 2 | 304 | 18.8 | % | ||||||||||||||||
Total operating profit | $ | 2,407 | $ | 2,191 | 9.9 | % | $ | (5 | ) | $ | 2,402 | 9.6 | % | |||||||||||
(1) Amounts adjusted for transformation strategy costs
(2) Amounts adjusted for transformation strategy costs and period over period foreign currency exchange rate and hedging differences
Reconciliation of GAAP and Non-GAAP Revenue, Revenue Per Piece, and Adjusted Operating Profit
(in millions, except per piece amounts):
Nine Months Ended |
||||||||||||||||||||||||
2020 As- Reported (GAAP) |
2019 As- Reported (GAAP) |
% Change (GAAP) |
Currency Impact |
2020 Currency Neutral (Non-GAAP)(1) |
% Change (Non-GAAP) |
|||||||||||||||||||
Average Revenue Per Piece: | ||||||||||||||||||||||||
International Package: | ||||||||||||||||||||||||
Domestic | $ | 6.48 | $ | 6.52 | (0.6 | ) | % | $ | 0.02 | $ | 6.50 | (0.3 | ) | % | ||||||||||
Export | 28.63 | 29.29 | (2.3 | ) | % | (0.02 | ) | 28.61 | (2.3 | ) | % | |||||||||||||
Total International Package | $ | 16.88 | $ | 17.04 | (0.9 | ) | % | $ | — | $ | 16.88 | (0.9 | ) | % | ||||||||||
Consolidated | $ | 10.85 | $ | 11.10 | (2.3 | ) | % | $ | — | $ | 10.85 | (2.3 | ) | % | ||||||||||
Revenue: | ||||||||||||||||||||||||
$ | 37,755 | $ | 33,085 | 14.1 | % | $ | — | $ | 37,755 | 14.1 | % | |||||||||||||
International Package | 11,175 | 10,458 | 6.9 | % | 3 | 11,178 | 6.9 | % | ||||||||||||||||
Supply Chain & Freight | 10,802 | 9,983 | 8.2 | % | 108 | 10,910 | 9.3 | % | ||||||||||||||||
Total revenue | $ | 59,732 | $ | 53,526 | 11.6 | % | $ | 111 | $ | 59,843 | 11.8 | % | ||||||||||||
(1) Amounts adjusted for period over period foreign currency exchange rate and hedging differences
2020 As- Adjusted (Non-GAAP)(1) |
2019 As- Adjusted (Non-GAAP)(1) |
% Change (Non-GAAP) |
Currency Impact |
2020 As-Adjusted Currency Neutral (Non-GAAP)(2) |
% Change (Non-GAAP) |
|||||||||||||||||||
As-Adjusted Operating Profit: | ||||||||||||||||||||||||
$ | 2,749 | $ | 3,162 | (13.1 | ) | % | $ | — | $ | 2,749 | (13.1 | ) | % | |||||||||||
International Package | 2,372 | 1,970 | 20.4 | % | (37 | ) | 2,335 | 18.5 | % | |||||||||||||||
Supply Chain & Freight | 727 | 740 | (1.8 | ) | % | (4 | ) | 723 | (2.3 | ) | % | |||||||||||||
Total operating profit | $ | 5,848 | $ | 5,872 | (0.4 | ) | % | $ | (41 | ) | $ | 5,807 | (1.1 | ) | % | |||||||||
(1) Amounts adjusted for transformation strategy costs
(2) Amounts adjusted for transformation strategy costs and period over period foreign currency exchange rate and hedging differences
Reconciliation of Non-GAAP Pension Discount Rate Neutral Operating Profit and Margin
(in millions):
Three Months Ended |
||||||||||||||||||||||||
2020 As-Adjusted (Non-GAAP)(1) |
2019 As-Adjusted (Non-GAAP)(1) |
% Change (Non-GAAP) |
Pension | 2020 As-Adjusted Pension Discount Rate Neutral (Non-GAAP)(2) |
% Change (Non-GAAP) |
|||||||||||||||||||
As-Adjusted Operating Profit: | ||||||||||||||||||||||||
$ | 1,133 | $ | 1,242 | (8.8 | ) | % | $ | 63 | $ | 1,196 | (3.7 | ) | % | |||||||||||
International Package | 972 | 693 | 40.3 | % | 4 | 976 | 40.8 | % | ||||||||||||||||
Supply Chain & Freight | 302 | 256 | 18.0 | % | 7 | 309 | 20.7 | % | ||||||||||||||||
Total operating profit | $ | 2,407 | $ | 2,191 | 9.9 | % | $ | 74 | $ | 2,481 | 13.2 | % | ||||||||||||
2020 As-Adjusted (Non-GAAP)(1) |
2019 As-Adjusted (Non-GAAP)(1) |
% Change (Non-GAAP) |
Pension | 2020 As-Adjusted Pension Discount Rate Neutral (Non-GAAP)(2) |
% Change (Non-GAAP) |
|||||||||||||||
As-Adjusted Operating margin: | ||||||||||||||||||||
8.6 | % | 10.8 | % | (2.2 | ) | % | 0.4 | % | 9.0 | % | (1.8 | ) | % | |||||||
International Package | 23.8 | % | 19.8 | % | 4.0 | % | 0.1 | % | 23.9 | % | 4.1 | % | ||||||||
Supply Chain & Freight | 7.7 | % | 7.6 | % | 0.1 | % | 0.2 | % | 7.9 | % | 0.3 | % | ||||||||
Total operating margin | 11.3 | % | 12.0 | % | (0.7 | ) | % | 0.4 | % | 11.7 | % | (0.3 | ) | % | ||||||
(1) Amounts adjusted for transformation strategy costs
(2) Amounts adjusted for transformation strategy cost and period over period impact of discount rates on pension service cost
Reconciliation of Non-GAAP Pension Discount Rate Neutral Operating Profit and Margin
(in millions):
Nine Months Ended |
||||||||||||||||||||||||
2020 As-Adjusted (Non-GAAP)(1) |
2019 As-Adjusted (Non-GAAP)(1) |
% Change (Non-GAAP) |
Pension | 2020 As-Adjusted Pension Discount Rate Neutral (Non-GAAP)(2) |
% Change (Non-GAAP) |
|||||||||||||||||||
As-Adjusted Operating Profit: | ||||||||||||||||||||||||
$ | 2,749 | $ | 3,162 | (13.1 | ) | % | $ | 188 | $ | 2,937 | (7.1 | ) | % | |||||||||||
International Package | 2,372 | 1,970 | 20.4 | % | 12 | 2,384 | 21.0 | % | ||||||||||||||||
Supply Chain & Freight | 727 | 740 | (1.8 | ) | % | 21 | 748 | 1.1 | % | |||||||||||||||
Total operating profit | $ | 5,848 | $ | 5,872 | (0.4 | ) | % | $ | 221 | $ | 6,069 | 3.4 | % | |||||||||||
2020 As-Adjusted (Non-GAAP)(1) |
2019 As-Adjusted (Non-GAAP)(1) |
% Change (Non-GAAP) |
Pension | 2020 As-Adjusted Pension Discount Rate Neutral (Non-GAAP)(2) |
% Change (Non-GAAP) |
|||||||||||||||
As-Adjusted Operating Margin: | ||||||||||||||||||||
7.3 | % | 9.6 | % | (2.3 | ) | % | 0.5 | % | 7.8 | % | (1.8 | ) | % | |||||||
International Package | 21.2 | % | 18.8 | % | 2.4 | % | 0.1 | % | 21.3 | % | 2.5 | % | ||||||||
Supply Chain & Freight | 6.7 | % | 7.4 | % | (0.7 | ) | % | 0.2 | % | 6.9 | % | (0.5 | ) | % | ||||||
Total operating margin | 9.8 | % | 11.0 | % | (1.2 | ) | % | 0.4 | % | 10.2 | % | (0.8 | ) | % | ||||||
(1) Amounts adjusted for transformation strategy costs
(2) Amounts adjusted for transformation strategy costs and period over period impact of discount rates on pension service cost
Reconciliation of Adjusted Capital Expenditures and Free Cash Flow (Non-GAAP measures)
(in millions):
Nine Months Ended |
|||||
2020 | |||||
Cash flows from operating activities | $ | 9,283 | |||
Capital expenditures | (3,219 | ) | |||
Principal repayments of finance lease obligations | (136 | ) | |||
Adjusted Capital Expenditures (Non-GAAP measure) | $ | (3,355 | ) | ||
Proceeds from disposals of PP&E | 10 | ||||
Net change in finance receivables | 24 | ||||
Other investing activities | (15 | ) | |||
Adjusted Free Cash Flow (Non-GAAP measure) | $ | 5,947 | |||
Discretionary pension contributions | 1,000 | ||||
Adjusted Free cash flow (Non-GAAP measure) excluding discretionary pension contributions | $ | 6,947 | |||
Amounts are subject to reclassification.
Source: UPS