ZTO Express (Cayman) Inc. (ZTO) Q1 2026 Earnings Call Transcript

Good morning, and welcome to the ZTO Express First Quarter 2026 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Sophie Lee. Please go ahead.

Hello, everyone, and thank you for joining us today. The company's results and the investor relations presentation were released earlier today and are available on ZTO.com. On the call today from ZTO are Mr. Mason Lai, Chairman and Chief Executive Officer, and Mrs. Huiping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights, followed by Ms. Yan, who will go through the financials and guidance. They will both be available to answer your questions during the Q&A session. I remind you that this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Letigation Reform Act of 1995 are based on management's current expectations and current market and operating conditions, and relate to events that involve known or unknown, which are difficult to predict, and many of which are beyond the company's control, which may cause the company's actual results, performance, or achievement to differ materially from those in the forward-looking statements. Further information regarding this and other risks, uncertainties, and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events, or otherwise, except as... It is now my pleasure to introduce Mr. Mason Lai. Mr. Lai will read through his prepared remarks in their entirety in Chinese before I translate for him. Thank you for joining today's conference call. in the first quarter of 2026 against a backdrop of steady microeconomic progress and continued growth in consumer demand and overall growth with parcel volume up 5.8% year over year. As anti-involution policies continued to deepen, pricing steadily recovered, competition accelerated to its return to rationality, and overall industry operating quality improved significantly. creating favorable conditions for leading enterprises to pursue high-quality development. We seized industry opportunities and delivered strong results across key metrics. Puzzle volume reached $9.67 billion, up 13.2% year-over-year, significantly outpacing industry growth, with market share expanding by 1.2 percentage points, Further solidifying our adjusted night income was $2.38 billion, 2.2% year-over-year. Excluding non-operating items, adjusted operating profit increased 22% year-over-year. Reflecting improvements in profitability, our retail parcel volume grew 65% year-over-year. Product mix continued to optimize. Combined unit cost of transportation and sorting decreased by $0.06 year over year. With digitalization and link management delivering tangible results, further reinforcing our cost advantage. Our strong first quarter performance was driven by a favorable policy environment combined with our strategic efficiency and product innovation. The continued improvements in the microeconomic and consumer environment, with steady growth in online consumption alongside clear regulatory guidance and effective policy measures, provided a solid foundation and strong support for the healthy and sustainable growth of the second. We are firmly aligned with policy direction and have been proactively upheld as an industry leader. We consistently supported the anti-involution policy, took the lead in maintaining market order, and committed to rational and value-driven to build a healthy environment. We stayed the course on our long-term strategy without pursuing short-term aggressive expansion and remained focused on network health, service improvement, and we continue to strengthen infrastructure, deepen digitalization, and enhance end-to-end management capabilities. Continuously building long-term competitiveness of transit improvements in organization and refined sortations, we achieved further reduction in unit costs, converting cost advantages into competitive models. We closely checked the market demand and optimized our product mix with focused efforts on higher logistics and other differentiated offerings. This drove a structural shift from single-channel e-commerce value towards a more diversified and improved value mix, meaningfully strengthening both profitability and resilience against the business. Looking ahead, we will continue to prioritize high-quality development. Thinking long-term, our key priorities for the next phase is to fully implement national policy and industry records, continue to lead the industry's anti-involution efforts in a healthy, competitive environment, and drive the industry toward high-quality development, deepen our core business internal strengths, and will continue to advance costs for efficiency gain across enhanced timeliness and customer satisfaction, solidify our service reach and enhance brand premium, delivering long-term value through discipline and sound execution, and the transparency into network management. Continue to optimize network policies and improve network management capabilities, making our policies more equitable, our management more efficient, and our network more stable and resilient. At the same time, through digitization, best practice, and targeted cultivation, we will help all network partners to reduce costs, improve operational capabilities, and profitability. Reinforcing the foundation and building a healthy ecosystem of share genuinely protects our continued optimized incentive mechanisms, strengthen care and recognition. Ensure steady income and continuously enhance their sense of fulfillment, accomplishment, and professional pride, assuring the most essential of our service and operations. Continuously enhance shareholder returns. The purchase magnet delivers consistent returns to our shareholders. Our industry is at a critical inflection, transitioning from scale-driven to value With consolidation among leading players as a parent, industry leaders will continue to be prominent. VTO will stay committed to high-quality market presence, high-quality service, low end-to-end costs, will relentlessly keep commitments with continuous wage improvements for our career. Healthy longevity was guided by our two moving forward alongside our network partners with confidence in turning in consistently outstanding report cards to the market and our shareholder.

Thank you, Chairman, and thank you, Sophie. Hello to everyone on the call. As I go through our financials, please note that unless specifically mentioned, all numbers quoted are in R&B, and percentage changes refer to year-over-year comparisons. Detailed information on our financial performance are highlights here. In the first quarter, we continued to adhere to our quarterly first strategy, which is consistent with the regulatory call against involution. As our operating efficiency continues to lead the industry, we achieved increases in both volume and profit. Our parcel volume grew by 13.2% to $9.7 billion, with a 1.4 points increase in market presence. Our total revenue increased 22% to $13.3 billion, excluding non-operating factors, such as government subsidies or tax rebates, which fluctuates from quarter to quarter throughout the year. our adjusted operating profit increased by 22% to reach $2.6 billion. Adjusted net income was $2.4 billion, which increased 5.2%. ASP for our core express delivery rose $0.11, or 8.2%, driven by an $0.18 positive impact from increased KA volume mix, led by higher-value reverse logistics, offsetting $0.09 increase in volume incentives. Increase in average parcel weight brought an additional $0.02 lift to our ASP, which increased 22.5%. For all unit costs for the core express delivery business increased 8.8%, or $0.08, which includes CA cost increase of $0.15, consistent with the strategic expansion of our CA volume. The combined unit sorting and transportation costs decreased by 8.8% or $0.06, driven largely by economies of scale. Specifically, unit cost of line-haul transportation decreased 10.5% to $0.37, reflecting optimized route planning. Unit sorting costs decreased $0.65 thanks to continued improvements in labor and automation productivity. Gross profit increased 20.3% to $3.2 billion, and gross profit margin rate decreased slightly. SG&A expenses excluding SBC increased 14.9% to $594.5 million. SG&A excluding SBC as a percentage of revenue declined to 4.5%, reflecting strong percent to $2.5 billion, and associated adjusted margin rate decreased to 0.9 points, 0.8 billion for the quarter, representing an 18% increase. Adjusted EBITDA increased 6.9% to 3.9 billion. Capital expenditure for the quarter. Moving on to maintaining our previous guidance for the year, 13% year-over-year, representing a parcel of 37 billion to 43. These estimates review. This concludes our prepared remarks.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. For the sake of keeping to time today, please limit your questions to two per person. The first question comes from Primli Son with Morgan Stanley.

Thank you, operator. Thank you for your question. Thank you for your question. Thank you for your question. I have two questions. The first question is about the cost. We saw the cost of the cost of the cost of the cost. Thank you very much. 大概是什么样一个程度 第二个问题是关于繁内转的 就是想请教一下繁内转 现在看起来持续性怎么样 往后看行业的价格水平的展望 是怎样的 也是想请教一下 现在往后看这个行业的价格变化 是不是能够消化 而有价带来的成本影响 Let me translate for myself Thank you, management, for taking my questions, and congratulations on the very strong profit growth, including government grants. I have two questions. The first question is about unit cost. We have seen a very impressive unit cost reduction in the first quarter this year, and it has been better compared with management's four-year target set at the beginning of the year. So I want to discuss what's the key drivers of the cost efficiency gain in the first quarter, any changes to our full-year cost reduction target. I specifically want to discuss the impacts from diesel price hikes on unit cost going forward. The second question is about anti-evolution. So how has the policy initiatives planned out year-to-date? What's the management outlook on industry pricing dynamics going forward in the rest of the year? I specifically want to understand whether industry price dynamics could fully pass through the potential cost inflation from diesel price hikes.

Thank you. which further and all these led to our continuous improvements in the core vehicle load rate in terms of further elaborated we widened while shortening which correlated with volume levels publishing refined standardized in terms of our cost reduction targets we related costs to further decrease for the full year. Beyond this year, we will focus heavily on network abilities as well. Sleigh reduced last mile related costs, all integrated and interrelated. Fuel prices due to to be managed policies has largely offset absorbed rising diesel costs through fuel surcharges. Therefore, utility is expected to impact consistently implemented in the effects in major high volume in certain provinces, whereas the policy continues to take, continues to shrink, driving, effectively restoring, benefiting from pricing. The industry leader, ZTO, remains committed, closely aligned with strategy, effectively safeguarding the right. The industry will be stable.

Your next question comes from Steve Q with Goldman Sachs.

Thanks, management, for taking my questions. I would like to ask questions on AI. So Zideo was an early mover in large-scale adoption of electronic radios and automated sorting in the past, which established a first mover advantage. So, I want to ask, in your AI era, how do you consolidate and expand these technology leadership? And could you share what initiatives have already been implemented, as well as your outlook on how AI will empower the various stages of the express delivery value chain going forward? Thank you.

Thank you for your strategy is to continuously deepen the entire, including to enhance tangible 3D digital tools, reducing the 80%. Leveraging our patient decision-making at the regional management level. Looking ahead, we will continue to build a multi-agent recommendation. Within the next six, complete the upgrade of our... ...which will be deployed across the network, our CTO, our leadership position, and generate...

Your next question comes from Aaron Luo with UBS. 赖总言总 所得总好 感谢你们接受我的提问 我这边有两个问题 第一个是我们观察到 在反内转这个背景下 行业增速是有所退坡的 所以想跟你们请教一下 目前你们对行业增速的预期 是不是发生了变化 第二个就是竞争格局 是否也在加速分化 就在这个背景下 第二个问题是关于 咱们的散建业务的 想再跟你们跟进一下 咱们散建业务的发展情况 Let me translate myself. Thank you, management, for taking my question. I have two of them. First, we have observed that industry growth has decelerated against the backdrop of the anti-evolution trend. Could you please kindly share your latest outlook on industry growth expectations and whether the competitive landscape is experiencing accelerated divergence? Second, regarding our retail parcel business, Could you please provide an update on its current development status and the possible profit level at this stage? Thank you so much.

Your next question comes from Mujin Lin with Cytest Securities. 请教一下各位领导就是我们怎么去展望今年下半年社保推进的一个节奏 那如果下半年社保在这个主要的产量区逐步去落地

那我们对这个全网成本端的一个量化的影响是否有一个大概的指引或者分析 我的问题就是这个谢谢 然后我翻译一下我自己的问题 So first of all thank you for picking me up And I guess my question will go with the legislation of the protected rights of delivery workers in the end. So as we can see that the legislation of protecting the rights of delivery workers is being like gradually implemented in a place like Guangdong and Shandong and so much so forth. so how should we envision the pace of the social security promotion and if it is gradually implemented in the second half of the year, would there be any guidance regarding to the quantitative impact on the cost of the entire network? Thank you.

For your question, our philosophy and practice, ZTO will continue to lead by example to, yes, indeed, your impact and indeed will.

Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Hu Ping-Yen for any closing remarks.

For joining us, what would the police share?

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.