UPS announced first-quarter 2016 diluted earnings per share of $1.27, a 13% increase over the same period last year.  The company achieved record first quarter results driven by both the U.S. Domestic and International small package segments.  International operating profit increased 15% to $574 million.  U.S. Domestic operating margin expanded on solid revenue growth and reduced per unit costs from productivity gains.

Total revenue was $14.4 billion, up 3.2% over the same quarter last year.  Revenue growth was slowed by lower fuel surcharges and currency exchange rates.  On a currency-neutral basis, revenue increased 3.7%.  Lower fuel surcharge rates reduced revenue growth by approximately 150 basis points.    

“We continue to execute well in all areas of our long-term enterprise strategy,” said David Abney, UPS chairman and CEO.  “The combination of revenue growth and benefits from our accelerated investments generated strong financial results in the quarter.”

Cash Flow

For the three months ended Mar. 31, UPS generated $2.7 billion in cash from operations, and $2.2 billion in free cash flow.  The company paid dividends of about $670 million, an increase of 6.8% per share over the same quarter in 2015.  UPS also repurchased 6.8 million shares for approximately $680 million.

U.S. Domestic Package

U.S. Domestic operating profit increased 7.6% to $1.1 billion, and operating margin expanded 50 basis points to 12.1%.  Productivity improvements bolstered by technology, combined with lower fuel cost resulted in a 1.9% reduction in cost per unit compared to the same quarter in 2015. 

Total revenue increased 3.1% over the first quarter of 2015, to $9.1 billion.  Average daily package volume increased 2.8% with Ground products up 3.3% and Next Day Air up 3.0%.  High demand from ecommerce shippers contributed to fast growth in business-to-consumer deliveries this quarter.

Revenue per package declined by 1.3% as base rate improvements were offset by lower fuel surcharges and changes in product and customer mix.  Fuel surcharge rates reduced yield growth by 120 basis points.

International Package

International operating profit jumped more than 15% to $574 million during the quarter, with improved performance from all regions.  Disciplined pricing combined with network efficiency gains contributed to the increase in profitability. 

Revenue was down 1.9%, however on a currency-neutral basis it was flat to the prior year.  Lower fuel surcharges reduced revenue by approximately 200 basis points.  Daily Export shipments increased slightly, as growth out of Asia and Europe offset declines in U.S. exports. Shipment growth from middle-market customers outpaced enterprise accounts during the quarter.

Total revenue per package increased 1.6% on a currency-neutral basis.  Solid base rate improvements across all regions were reduced by changes in fuel surcharge rates.  Premium products grew faster than non-premium during the quarter.

Supply Chain & Freight

Supply Chain and Freight revenue increased by more than 10% to $2.4 billion. This was mainly due to the acquisition of Coyote Logistics in the third quarter of last year.  Operating profit was better than anticipated, but slightly less than last year.  Weak market conditions in the Air Freight Forwarding and LTL markets weighed on top line growth.  

The Forwarding business expanded operating margins through a focus on revenue quality and operating cost reductions.  The asset-light, truckload brokerage business is performing well, even in a market that remains soft.

UPS Freight LTL revenue per hundredweight increased 2.1% over the same period last year.  Total tonnage remains challenged by the current market conditions.  The business unit remains focused on disciplined revenue management.

“Revenue management actions and improved network efficiencies are driving substantial operating profit growth,” said Richard Peretz, UPS chief financial officer.  “We expect this momentum to continue, and therefore reaffirm our guidance for 2016 full-year diluted earnings per share of $5.70 to $5.90, an increase of 5% to 9% over adjusted 2015 results.”