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Supply Chain and Freight produced strong profit growth in Q4
UPS announced Q4, 2019 adjusted earnings per share of US$2.11, an 8.8% increase over the same period last year. The Company’s results highlight the strong volume growth in the US Domestic segment and the impact of successful execution from all segments. The Company’s network improvements from transformation enabled UPS to embrace a surge in demand for air products while at the same time generate productivity improvements and positive operating leverage.
Full-year 2019 consolidated results show that UPS’s transformation investments generated higher total revenue, operating profit growth and margin expansion in all segments. Full-year 2019 diluted EPS totalled US$5.11; adjusted diluted EPS was US$7.53, excluding the impacts of the MTM pension charge, transformation charges and legal contingencies. Total revenue increased to US$74.0 billion, driven by strong volume growth in the US. Capital expenditures were US$6.4 billion, and on an adjusted basis US$6.5 billion.
In Q4, 2019, the Company incurred a non-cash, after-tax mark-to-market (MTM) pension charge of $1.8 billion, an after-tax transformation charge of US$39.0 million, and US Domestic after-tax legal contingency and expense charges of US$91.0 million, predominantly related to the New York cigarette case. The total impact to EPS was US$2.23 per diluted share. MTM pension charges of US$1.42 per diluted share were included in the Company’s fourth-quarter GAAP results in the prior-year period.
For the total company in Q4, 2019, average daily volume levels exceeded 26.6 million packages, an increase of 7.5%, driven by high demand for air services in the US. Consolidated revenue increased 3.6% to US$20.6 billion, due to strong average daily volume growth during the peak holiday season, as operating profit grew 6.4%, and 13.7% on an adjusted basis, with margin improvement across all segments.
The US Domestic segment benefited from several transformation initiatives, including increased automated capacity and new aircraft added to the global air fleet, which positioned UPS to handle volume growth in each month of the quarter. Total volume across all products grew nearly 9.0%. Growth was driven by the structural shift to faster delivery in retail and eCommerce, and from competitive wins. UPS experienced growth from a number of large and SMB customers, with the growth led by UPS’s largest customer, Amazon. UPS processed record volume during the quarter as revenue grew US$833.0 million, a more than 6.5% increase, with growth across all products. Operating profit increased 7.5%, up over 20.0% on an adjusted basis. Operating margin was 8.0%; adjusted operating margin expanded 110 basis points. Unit costs declined 2.1%; on an adjusted basis down 3.2%, contributing to the third consecutive quarter of positive operating leverage.
The International segment delivered higher profit and expanded operating margin, adapting well to the dynamic macro environment. Strong execution, cost management and a strategic focus on market and eCommerce opportunities enabled the solid performance for the quarter. Export volume was down slightly as gains on intra-Europe, intra-Asia and US export trade lanes did not fully offset the declines into and out of the UK and on the Asia-US lane. Operating profit increased more than 2.0%, and by 3.6% on an adjusted basis. Industry-leading operating margin remained strong at 21.2%; adjusted operating margin expanded 110 basis points.
Supply Chain and Freight produced strong profit growth in the quarter. The segment also expanded operating margins driven by disciplined cost management actions and continued focus on growing its SMB customer base. Operating profit increased more than 16.0%, and by 17.0% on an adjusted basis. Logistics, Marken and UPS Freight delivered revenue growth. Logistics and Marken grew profits by double digits, which helped offset softer conditions in Forwarding and truckload brokerage. UPS Freight produced an increase in revenue per LTL (less-than-truckload) hundredweight of 2.5%, driven by its focus on SMBs.
Looking ahead, the Company provides guidance on an adjusted (non-GAAP) basis because it is not possible to predict or provide a reconciliation reflecting the impact of future pension mark-to-market adjustments or other unanticipated events, which would be included in reported (GAAP) results and could be material. Adjusted, diluted earnings per share are expected to be in a range of us$7.76 to us$8.06, which includes forecasted weakness on the industrial side of the US and global economies as well as spending on SMB initiatives that will significantly increase UPS competitiveness and will be EPS accretive in 2021. Capital expenditures are planned to be around US$6.7 billion, primarily to support global facility and automation expansions.