413UPS® (NYSE:UPS) today announced adjusted diluted earnings per share of $1.21 for the second quarter of 2014, a 7.1% improvement over the prior year period. E-commerce shipping in the U.S. and strong International Export growth contributed to a 7.2% increase in global package shipments.

As previously announced, the company completed the transfer of post-retirement liabilities for certain Teamster employees to defined contribution healthcare plans and recorded an after-tax charge of $665 million. On a reported basis, including this charge, second quarter diluted earnings per share decreased 57% to $0.49.

“The strong revenue growth this quarter is evidence that our portfolio resonates with customers, with more choosing UPS as their logistics provider,” said Scott Davis, UPS chairman and CEO. “As we’ve said, 2014 is the year of investing for the customer. We are providing new capabilities and expanding capacity to ensure UPS meets the rapidly growing needs of the marketplace.”

Cash Flow

For the six months ended June 30, UPS generated $1.0 billion in free cash flow. The company paid dividends of $1.2 billion, up 8.1% per share over the prior year, and repurchased 13.7 million shares for approximately $1.4 billion. Cash flow was reduced by the $2.3 billion payment made to transfer post-retirement healthcare liabilities for certain employees.

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U.S. Domestic Package

U.S. Domestic revenue increased 5.2% to $8.7 billion. Daily package volume improved 7.4%, led by gains in UPS Ground and Deferred up 8.1% and 5.4%, respectively. Adjusted operating profit was $1.2 billion, up 3.0% over the prior year second quarter. Second quarter results reflect additional operating costs associated with rail service performance and investments made to enhance operational capabilities and expand network capacity.

On a reported basis, operating profit declined 82% to $209 million as a result of the post-retirement liability transfer previously mentioned.

Ground product growth was driven primarily by lightweight e-commerce shipments. UPS SurePost shipments increased more than 60% over the prior year period and accounted for about half of the total growth.

Total revenue per package declined 2.0% as base rates improvements were offset by customer and product mix. The rapid growth in UPS SurePost was the primary cause of the reduction, while growth from large enterprise accounts also weighed on yields.

International Package

International small package revenue climbed 6.2% or $190 million to $3.3 billion. Strong growth in Export shipments drove revenue expansion in the segment. Adjusted operating profit improved 4.4% to $471 million.

On a reported basis, operating profit declined $7 million to $444 million as a result of the post-retirement liability transfer previously mentioned.

Export shipments increased 9.1% over the prior year, with growth from all regions of the world. Europe led the way with daily shipment gains of more than 13% while Asia was up more than 6%. Non-U.S. Domestic products were 4.8% higher, driven by growth throughout Europe.

Revenue per package on a currency-neutral basis was down 1.7% from the prior year, driven by a 4% decline in Export yield. Non-premium products continued to outpace premium as customers seek low-cost alternatives. Double-digit gains in Pan-European shipments also lowered revenue per package.

Rapid shipment growth in Europe caused UPS to purchase additional short-term capacity at a premium from local service partners. As a result, the company experienced increased delivery and network expenses during the quarter.

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Supply Chain & Freight

Supply Chain and Freight revenue increased 6.5% to $2.3 billion, resulting primarily from growth in the Forwarding and Distribution business units. Adjusted operating profit was 11% higher at $176 million, and operating margin expanded 30 basis points to 7.5%.

On a reported basis, operating profit dropped $65 million, down 41% as a result of the post-retirement liability transfer previously mentioned.

UPS Forwarding produced double-digit operating profit growth. Strong improvements at North American Air Freight, Brokerage and Ocean Freight were offset somewhat by a drop in International Air Freight. Market pricing on the key Asia to U.S. lane continues to put pressure on rates.

The Distribution business unit experienced high single-digit revenue growth as a result of gains from Retail and Healthcare customers. UPS continues to invest in expanding its global distribution footprint.

UPS Freight revenue was 5.5% higher, driven by a 4.1% increase in LTL revenue per hundredweight and tonnage gains of 1.6%. Operating profit and margin improved from the prior year, as the business unit continued to focus on profitable revenue opportunities.

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