UPS has announced fourth-quarter 2015 adjusted diluted earnings per share of $1.57, a 26% increase over adjusted fourth-quarter 2014 results. All three business segments expanded operating margins and generated double-digit operating profit growth.
For the full year, UPS achieved adjusted diluted earnings per share of $5.43, an increase of 14% over 2014 adjusted results. Included in these results were several discrete tax credits that increased the earnings per share by about $0.07 for the quarter and a total of $0.10 for 2015.
Total revenue in the fourth quarter rose slightly, to $16.1 billion. Revenue growth was slowed by currency translations and lower fuel surcharges. On a currency-neutral basis, revenue was up 2.4% compared to the same period last year. Revenue management initiatives continue to improve base rates across all segments.
“Our flexible integrated network, close collaboration with customers and the extraordinary efforts of UPSers enabled us to achieve great service and record financial performance this quarter,” said David Abney, UPS chief executive officer. “This year’s results build on our multi-year strategy to deliver improved shareowner value.”
On a reported basis, diluted earnings per share for 2015 were $5.35 compared to $3.28 in 2014. Fourth-quarter GAAP diluted earnings per share were $1.48 compared to the fourth-quarter 2014 diluted earnings per share of $0.49. Fourth quarter 2015 results include a $79 million non-cash, after-tax, mark-to-market pension charge to recognize lower-than-planned asset returns that were somewhat offset by a higher discount rate. In the prior-year period, the company reported non-cash, after-tax charges of $692 million related to pension mark-to-market charges and the transfer of certain healthcare liabilities.
UPS delivered 1.3 billion packages during the fourth quarter, an increase of 1.8% over the same period last year. For calendar year 2015, the company delivered 4.7 billion packages, up 2.1% over 2014. During peak season 2015, UPS delivered 612 million packages.
Cash Flow
For the year ended Dec. 31, UPS generated $5.0 billion in free cash flow. The company paid dividends of $2.5 billion, an increase of 9.0% per share over the prior year. UPS also repurchased 27 million shares for approximately $2.7 billion.
U.S. Domestic Package
U.S. Domestic revenue increased 2.6%, to $10.3 billion. Lower fuel surcharge rates reduced revenue growth by about 250 basis points. Revenue per package increased slightly to $8.89. Base rates driven by company actions remain strong while changes in fuel surcharges and customer mix lowered revenue-per-package growth.
Strong demand from ecommerce shippers contributed to a 2.4% increase in average daily shipments. Deferred Air products soared 15% and Next Day Air was up 10% over the same period last year. UPS completed deliveries to more than 1.9 million new addresses during December, demonstrating the growing influence of online retail.
Adjusted operating profit increased $209 million, or more than 18% over the fourth-quarter 2014 adjusted results. Operating margin expanded 170 basis points, to 13.1%, on an adjusted basis. The company’s focus on revenue quality, combined with better network performance, resulted in improved operating leverage this quarter.
On a reported basis, operating profit increased $840 million, or 189% with operating margin of 12.5%, as a result of the mark-to-market pension entries mentioned above.
International Package
International adjusted operating profit was up 16%, to $624 million, in the fourth quarter, led by strong performance in Europe. Disciplined pricing, favourable customer and product mix, combined with improved operational performance, drove increased profitability. For the first time, the International segment surpassed $2 billion in annual adjusted operating profit.
UPS’s focus on more-profitable accounts led to improved base rates across all regions. On a currency-neutral basis, revenue per package was down 0.9% compared to the fourth quarter of 2014. Lower fuel surcharge masked revenue per package growth by approximately 350 basis points and offset strong growth in base rates.
Export shipments increased slightly, led by mid-single digit growth in the Europe and Americas regions. Growth in Europe transborder products and exports to the U.S. offset a drop in U.S. and Asia exports.
On a reported basis, operating profit increased $245 million, or 73%, as a result of the mark-to-market pension entries mentioned above.
Supply Chain & Freight
Supply Chain & Freight adjusted operating profit increased 11%, to $199 million over adjusted 2014 fourth-quarter results. Total segment revenue increased 6.0% to $2.6 billion. The inclusion of Coyote Logistics revenue for the full quarter more than offset the impact of softer markets, lower fuel surcharges and actions to improve revenue quality in the other business units.
Freight Forwarding generated increased operating profit and margin expansion despite declines in tonnage. International Air Freight benefitted from revenue quality initiatives, which when combined with a drop in buy-rates resulted in the best pricing spreads in several years.
UPS Freight LTL revenue per hundredweight increased 2.1%. Lower fuel surcharges drove the growth rate lower by about 550 basis points. This improvement was offset by a 12% tonnage decline that lowered revenue. UPS continues to focus on profitable revenue in a challenging market environment.
On a reported basis, operating profit for the segment increased $212 million as a result of the mark-to-market pension entries mentioned above.
Outlook
“This was the fourth consecutive quarter that UPS exceeded our financial expectations,” said Richard Peretz, UPS chief financial officer. “Our business generated strong results in 2015. While we face uncertain macro-economic conditions, we are continuing to invest for profitable growth,” Peretz continued. “Our guidance for 2016 full-year diluted earnings per share is $5.70 to $5.90 an increase of 5% to 9% over adjusted 2015 results. Excluding the 2015 discrete tax credits, the growth rate is 7% to 11%.”