United Parcel Service, Inc. :UPS-US: Earnings Analysis: Q4, 2016 By the Numbers : March 15, 2017

United Parcel Service, Inc. reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of United Parcel Service, Inc. – Deutsche Post AG Sponsored ADR, Expeditors International of Washington, Inc., C.H. Robinson Worldwide, Inc. and Air Transport Services Group, Inc. (DPSGY-US, EXPD-US, CHRW-US and ATSG-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 16801 million, Net Earnings of USD -239 million.
  • Gross margins widened from 12.27% to 12.46% compared to the same period last year, operating (EBITDA) margins now 0.03% from 15.66%.
  • Year-on-year change in operating cash flow of 9.36% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 16801 14845 14544 14312 15964
Revenue Growth (%YOY) 5.24 4.76 3.75 2.98 0.48
Earnings (mil) -239 1270 1269 1131 1331
Earnings Growth (%YOY) -117.96 1.03 3.17 10.23 193.82
Net Margin (%) -1.42 8.56 8.73 7.9 8.34
EPS -0.27 1.44 1.43 1.27 1.48
Return on Equity (%) -59.82 187.56 197.89 182.02 239.87
Return on Assets (%) -2.43 13.25 13.1 11.68 13.77

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Market Share Versus Profits

Revenues History
Earnings History

UPS-US‘s change in revenue this period compared to the same period last year of 5.24% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that UPS-US is holding onto its market share. Also, for comparison purposes, revenues changed by 13.18% and earnings by -118.82% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings declined year-on-year largely because of the increases in operating costs. Its operating margins (EBITDA margins) went from 15.66% to 0.03%. This decline in earnings would have been worse except for the fact that the company showed improvement in gross margins, from 12.27% to 12.46%. For comparison, gross margins were 13.14% and EBITDA margins 16.87% in the immediate last period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

UPS-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 11.06 days from 12.04 days for the same period last year.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

UPS-US‘s change in operating cash flow of 9.36% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings


The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 12.27% to -3.32% and (2) one-time items that contributed to a decrease in pretax margins from 12.33% to -3.07%

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

United Parcel Service, Inc. is a logistics and package delivery company, which provides supply chain management services. Its logistics services include transportation, distribution, contract logistics, ground freight, ocean freight, air freight, customs brokerage, insurance and financing. The company operates its business through three segments: U.S. Domestic Package, International Package and Supply Chain & Freight. The U.S. Domestic Package segment offers a full spectrum of U.S. domestic guaranteed ground and air package transportation services. This segment also offers time-definite, money-back guaranteed and small package delivery services in the U.S. The International Package segment includes small package operations in Europe, Asia-Pacific, Canada and Latin America, the Indian sub-continent, and the Middle East and Africa. This segment also offers guaranteed day and time-definite international shipping services. The Supply Chain & Freight segment offers transportation, distribution and international trade and brokerage services, as well as financial and information services. United Parcel Service was founded by James E. Casey and Claude Ryan on August 28, 1907 and is headquartered in Atlanta, GA.

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