ZTO Express (Cayman) (NYSE:ZTO) held its first-quarter earnings conference call on Tuesday. Below is the complete transcript from the call.

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The full earnings call is available at https://event.choruscall.com/mediaframe/webcast.html?webcastid=zWxQPVou

Summary

ZTO Express (Cayman) Inc reported a 13.2% year-over-year increase in parcel volume to 9.67 billion, outperforming industry growth and expanding market share by 1.2 percentage points.

Adjusted net income rose by 5.2% to 2.38 billion RMB, with adjusted operating profit increasing 22% year-over-year, driven by cost efficiencies and digitalization efforts.

The company emphasized strategic alignment with anti-involution policies, focusing on network health, service improvement, and profitability without aggressive expansion.

Operational highlights include significant cost reductions in transportation and sorting, improved automation, and AI deployment across sorting operations, customer service, and last-mile dispatch.

ZTO maintained its guidance for 10-13% parcel volume growth for the year, aiming for high-quality development with a focus on long-term value creation and shareholder returns.

Full Transcript

OPERATOR

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 one on your telephone keypad.

To withdraw your question, please press Star then two. Please note this event is being recorded. I would now like to turn the conference over to Sophie Lee. Please go ahead.

Sophie Lee (Capital Markets Director)

Thank you, Kaylee. 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 the company's IR [email protected]. On the call today from ZTO are Mr. Mason Lai, Chairman and Chief Executive Officer, and Mrs. Hui Bing Yen, Chief Financial Officer. Mr. Lai will give a brief overview of the Company's business operations and highlights, followed by Mrs.

Yan who will go through the financials and guidance. They will both be available to answer your questions during the Q and A session that follows. I remind you that this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform act of 1995. Such statements are based on management's current expectations in the current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other

factors all of 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 required under law.

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 in English.

Okay, let me translate first. Hello everyone. Thank you for joining today's conference call. In the first quarter of 2026, against a backdrop of steady macroeconomic progress and continued growth in consumer demand, China's express delivery industry maintained overall growth with parcel volume up 5.8% year over year. As anti-involution policies continue to deepen, pricing steadily recovered, competition accelerated to its return to rationality and overall industry operating quality quality improved significantly creating favorable conditions for leading enterprises to pursue high quality development.

During the quarter, we seized the industry opportunities and delivered strong results across key metrics. Parcel 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 leadership position. Adjusted net income was 2.38 billion up 5.2% 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 lean 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 focus, operating efficiency and product innovation. First, the continued improvements in the macroeconomic 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 exposure delivery industry. Second, we are firmly aligned with policy direction and have been proactively upheld a healthy industry eco atmosphere. As the industry leader, we consistently supported the anti evolution policy, took the lead in maintaining market order and committed to rational and value driven competition, working with the broader industry to build a healthy environment.

Third, we stayed the course on our long term strategy without pursuing short term aggressive expansion and remained focused on network health, service improvement and profitability. We continue to strengthen infrastructure, deepen digitalization and enhance end to end management capabilities, continuously building long term competitiveness. Fourth, through optimization of transit efficiency, through improvements in organization and refined flotation management, we achieved a further reduction in unit costs, converting cost advantages into competitive mode in profitability.

Fifth, we closely tracked market demand and optimized our product mix with focused efforts on higher value retail parcels, reverse logistics and other differentiated offerings. This drove a structural shift from single channel e commerce volume towards a more diversified and improved value mix, meaningfully strengthening both profitability and resilience against the business cycles. Looking ahead, we will continue to prioritize high quality development thinking long term and insist upon value creation.

Our key priorities for the next phase are as the following. First, fully implement national policy and industry regulatory requirements, continue to lead the industry's anti evolution efforts, safeguard a healthy competitive environment and drive the industry toward high quality development. Second, deepen our core business internal strengths and capabilities. We will continue to advance cost initiatives for efficiency gain across all fronts, enhance timeliness and customer satisfaction, solidify our service reach and enhance brand premium, delivering long term value through discipline and sound execution.

Third, further integrate the principles of fairness and 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 or expertise sharing 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 shared success with mutual prosperity.

Fourth, genuinely protect the rights and the well being of frontline careers. We will continue to optimize incentive mechanisms, strengthen care and recognition, ensure steady income growth for careers and continuously enhance their sense of fulfillment, accomplishment and professional pride, assuring the most essential of our service and operations. Fifth, continuously enhance shareholder returns backed by strong profitability and cash flow. We will refine our regular cash dividend and share repurchase mechanisms, optimize our capital return structure and deliver consistent returns to our shareholders to all of our investors.

Our industry is at a critical inflection point, transitioning from scale driven to value driven development. This consolidation among leading players is apparent and the value of the industry leaders will continue to be prominent. ZTO will stay committed to high quality market presence, high quality service, low end to end costs and sound profitability. We will relentlessly deliver on our three key commitments which are steady earnings growth for our network partners, continuous wage improvements for our couriers and healthy longevity for zto.

Guided by our long term value principles, we look forward to moving forward alongside our network partners with confidence in turning in consistently outstanding report cards to the market and our shareholders. And next, let's invite our CFO Ms. Yen to present the financial results and guidance.

Hui Bing Yen (Chief Financial Officer)

Thank you Chairman and thank you Sophie. Hello to everyone on the call as I go through our financials, please please note that unless specifically mentioned, all numbers quoted are in RMB and percentage changes refer to year over year comparisons. Detailed information on our financial performance, unit economics and cash flow results are posted on our website and I'll go through some of the highlights here. In the first quarter, we continued to adhere to our quality-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 11 cents or 8.2%, driven by an 18 cent 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 2 centimeter to our ASP. Total cost of revenue was 10 billion, which increased 22.5%. Overall unit cost for the Core Express Delivery business increased 8.8% or 8 cents, which includes KA cost increase of 15 cents.

That was consistent with the strategic expansion of of our KA volume. The combined unit sorting and Transportation costs decreased by 8.8% or 6 cents, driven largely by economies of scale. Specifically, unit cost of line haul transportation decreased 10.5% to 37 cents, reflecting optimized route planning and enhanced load efficiency. Unit sorting costs decreased 6.4% to 25 cents 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 by 0.3 points to 24.4%. SGNA expenses excluding SBC increased 14.9% to $594.5 million. SGNA excluding SBC as a percentage of revenue declined to 4.5% reflecting strong corporate cost efficiency. Income from operations increased 5.8% to $2.5 billion and associated margin rate decreased 2.9 points to 19.2%. Operating cash flow was 2.8 billion for the quarter representing an 18% increase.

Adjusted EBITDA increased 6.9% to 3.9 billion and capital expenditure for the quarter was total 1.8 billion and we anticipate its annual CapEx in 2026 to be around 60 billion. To be 6 billion. I'm sorry. Now moving on to our guidance. Based on current market and operating conditions, we are maintaining our previous guidance for the year that parcel volume growth of 10 to 13% year over year, representing a parcel volume range of 42.37 billion to 43.52 billion.

These estimates reflect management's current preliminary view and are subject to change. This concludes our prepared remarks. Operator, Please open open the line for questions. Thank you.

OPERATOR

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 Quinh Lee San with Morgan Stanley. Thank you operator. Let me translate for myself.

Thank you management for taking my questions and congratulations on the very strong profit growth excluding 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 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? Specifically want to discuss the impacts from diesel price hikes on unit cost going forward. The same question is about anti evolution. So how has the policy initiatives playing out year to date? What's the management's outlook on industry pricing dynamics going forward in the rest of the year? Specifically want to understand whether industry price dynamics could fully pass through the potential cost inflation from diesel price hikes.

Thank you.

Quinh Lee San (Equity Analyst)

India. So yeah, Tongue. Sophie. Okay, Now let me help translate Chairman's answer. First question is relating our cost in the first quarter. I won't go through all the results but the fact that this cost performance improvements was primarily driven by the implementation of improved automation and which further enabled by our digitized solutioning such as the intelligent tools and refined the management process and all these led to our continuous improvements in the core metrics including vehicle load rates and per capita efficiency in terms of transportation costs.

Chen further elaborated. First, we widened the implementation of digitization tools which optimize transportation capacity structure and route design so as to effectively lower transportation costs while shortening the end to end transit duration time. Second, we refined low rate metrics and measurement mechanism by setting reasonable loading standards and adopted precise gross variables volume measurements. We also implemented tier incentives for load rates which correlated with volume levels, hence fully leveraged economies of scale so as to improve overall loading efficiency.

Third, we continuously improved fleet management by establishing refined standardized cost model for vehicle operations and maintenance as benchmark for our drivers, thereby lowering operating and maintenance cost continuously. In terms of sorting cost. On one hand, we continue to invest in automated equipment that is armed with digitized solutioning at our sorting hubs, utilizing real time monitoring and upgrading old equipment to improve operational efficiency and facility automation level while controlling costs.

On the other hand, we have reviewed our workforce deployment and enhanced individual accountability by a clear reward and reprimand mechanism, hereby boosting per capita productivity. In terms of our cost reduction targets, we expect the core transit related cost to further decrease for the full year. Beyond transit centers, we will place greater emphasis on end to end cost reduction. This year we will focus heavily on network optimization, further empowering our outlets and enhancing their operational capabilities as well.

We'll continue to encourage outlets to install automated equipment, deploy unmanned vehicles and promote direct link models to continuously reduce last mile cost. This entire end to end cost focus will further improve our own sorting and transit related cost as well because it's all integrated and interrelated as far as the impact on the fuel prices Due to the tension in the Middle east, domestic diesel prices increased significantly in March. However, as international tension continued to be managed, price has somewhat declined in late April.

Overall, the price recovery driven by the anti involution policies has largely offset the impact of high fuel costs and certain provinces have absorbed rising diesel costs through fuel surcharges. Therefore, oil price volatility is expected to have limited impact on our total network wide cost in the second quarter. Now for the question relating to anti evolution. Since the Chinese New Year, the anti evolution policy has been consistently implemented and the effects are meaningful, particularly in major high volume regions.

Meanwhile, enforcement has been progressively tightened in certain provinces where implementation had previously lagged. As the policy continues to take effect, the volume of low priced parcel has continued to shrink, driving a further recovery in price level and effectively restoring the level of interest of both outlets and couriers. Benefiting from this improving competitive environment, the company has achieved simultaneous growth in volume and pricing with restoration of market share.

As the industry leader, ZTO remains committed to closely stay closely aligned with with the government's anti involution initiatives. We will continue our balanced development strategy that prioritizes service quality while effectively safeguarding the rights and interests of our last mile network. We are confident that with productive regulatory guidance the industries will develop in a healthier manner, more orderly competition and also pricing level will be stable overall.

Steve Q (Equity Analyst)

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 ZTO was an early mover in large scale adoption of electronic labels and automated sorting in the past which established a first mover advantage. So I want to ask in the AI era, how do you consolidate and extend 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.

Aaron Luo (Equity Analyst)

Your next question comes from Aaron Luo with ubs.

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-involution 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 profit level of parcels at this stage?

Thank you so much.

Mujin Lin (Equity Analyst)

Your next question comes from Mujin Lin with SciTest Securities.

So first of all, thank you for picking me up and I guess my question will go with the legislation of the Protection of rights of delivery workers in the end. So as we can see that the legislation of the protecting the rights of delivery workers is being gradually implemented in the 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 that be any guidance regarding to the quantitative impact on the cost of the entire network?

Jiang shanin

Jiang shanin, Thank you very much for your question. I'll translate and supplement for Chairman's answer Since the establishment of our shared success philosophy and practice, we place a high priority on the rights and interests of our network partners and frontline couriers. We believe that the implementation of social security coverage is aligned with the objectives of anti-involution policy as both aim to safeguard frontline workers interests and promote healthy industry development.

We welcome the early implementation of of Social Security policies. In the short term, the rollout of these policies may lead to an increase in per parcel cost. However, from a long term perspective, establishing a more stable and secured employment system will enhance network cohesiveness, reduce workforce turnover and further solidify the quality of our last mile services. As an industry leader, ZTO will continue to lead by example to promote the sector's compliance high quality development.

Going forward, if more specific Social Security implementation measures are introduced, we will proactively respond to the government's call and fully support policy implementation. As we have been previously communicating that on our consolidated group our compliance level with the Social Security is much higher. Yes indeed, at the outlet level there are various different practices so the major impact perhaps will come from the network partners and we will be supportive in helping our network partner to become compliant and also help them reducing cost as what we are currently implementing is indeed generating results to help them coping with

any additional cost increases coming from the Social Security policies implementation. Hope that answers your question. Okay, thank you.

OPERATOR

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

Hu Ping Yen

Thanks everybody for joining us for the call again today and we have generated positive results and performance going forward. Are continuously relying on our strategy of a balanced approach with quality first and scale and volume improvements with reasonable level of profit that is equitably shared among our brand participants. So going forward we look forward to speaking with you again and thanks again for your support and attention.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.