Logistics giant UPS announced fourth quarter 2014 adjusted diluted earnings per share of $1.25, flat to the prior-year period.  On a GAAP basis, fourth...
UPSLogistics giant UPS announced fourth quarter 2014 adjusted diluted earnings per share of $1.25, flat to the prior-year period.  On a GAAP basis, fourth quarter 2014 diluted earnings were $0.49 per share, compared to $1.25 in 2013.

On Jan. 23, the company announced its expected fourth quarter results, which were consistent with today’s final announcement.  UPS reported that operating results in the U.S. Domestic segment were negatively impacted by higher than expected peak related expenses.

“UPS customers were delighted with the high quality service we delivered during the holiday season,” said David Abney, UPS chief executive officer.  “However, the financial results were below our expectations.”

“As we move into 2015, we will address this disparity with both cost and revenue actions,” continued Abney.  “We will take actions necessary to improve profitability by increasing operational efficiency and adjusting price where appropriate.  Our growth strategy is sound and we reaffirm our long-term target of 9%-to-13% earnings per share growth.”

UPS delivered 1.3 billion packages during the fourth quarter, an increase of 8.1% over the same period last year.  For calendar year 2014, the company completed delivery of 4.6 billion packages, up 6.8% over 2013.

During peak season 2014, UPS:

  • 100,000 temporary employees
  • Delivered 572 million pacHired kages worldwide in December
  • Experienced a 12% increase in both Cyber Monday and Peak Day deliveries, exceeding company projections
  • Peak Day scheduled deliveries exceeded 35 million packages, more than 100% above an average day

As previously reported, fourth quarter GAAP financial results include two special items.  First, discount rates used to calculate company-sponsored pension and postretirement liabilities at year-end decreased significantly during 2014.  This resulted in a non-cash, mark-to-market, after-tax charge of $670 million.  Second, the company recorded an after-tax charge of $22 million relating to a previously announced transfer of certain healthcare liabilities.

Cash Flow

For the year ended Dec. 31, UPS generated $3.4 billion in free cash flow, after making after-tax contributions of $800 million to company-sponsored pension plans, as well as $1.5 billion to transfer certain union employees to multiemployer healthcare plans in the second quarter.  In addition, the company invested $2.3 billion in capital expenditures during the year.

U.S. Domestic Package                                                                                                                       

U.S. Domestic fourth quarter revenue climbed 7.5% to $10 billion.  Daily package volume increased 6.6% with Deferred Air and Ground up 11% and 7.1%, respectively.

Fourth quarter adjusted operating profit was $1.1 billion, a 5.3% drop from the prior-year period.  Operating expense increased more than $200 million primarily due to higher than anticipated peak related costs.  Decreased productivity, higher contract carrier rates as well as overtime and training hours contributed to the excess costs.

Total revenue per package was down 0.8%, as lower fuel surcharges and changes in product mix offset increases in base rates.  UPS SurePost product grew 28% in the fourth quarter.

On a reported basis, fourth quarter 2014 operating profit was down 63% to $444 million as a result of the pension mark-to-market charge and the transfer of certain healthcare liabilities.

International Package                                                                                                           

International revenue, on a currency-neutral basis, increased 5.9% to $3.4 billion on 4.3% growth in daily package volume.  Export shipments were up 5.2% per day, driven primarily by 8.5% growth from Europe, offset somewhat by a decline in Asia export volume.  Non-U.S. domestic products were up 3.6% with strong growth in Canada, Spain and Mexico.

Underlying business performance showed positive momentum. However, currency fluctuations contributed $40 million in year-over-year comparison headwinds.  In addition, one-time items, including a restructuring charge, weighed on results by approximately $30 million.  International adjusted operating profit was $536 million, relatively flat with the prior-year.

Export yield contracted 1.7% on a currency-neutral basis, as a result of lower fuel surcharges, product mix and stronger intra-regional shipment growth.  Non-U.S. domestic revenue per package increased 0.8% when adjusted for currency.

On a reported basis, operating profit for the fourth quarter declined 38% to $335 million as a result of the pension mark-to-market charge and the transfer of certain healthcare liabilities.

Outlook

“This year will be one of continuous improvement and advances in strategic initiatives that have great potential for the company,” said Kurt Kuehn, UPS chief financial officer.  “E-commerce growth, operations technology implementation, emerging market expansion and industry specific solutions will provide momentum for UPS as we move throughout the year.

“The company expects growth across all business units,” Kuehn continued.  “We anticipate full-year 2015 diluted earnings per share of $5.05 to $5.30, a 6%-to-12% increase over our 2014 adjusted results.”

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