ZTO Express (Cayman) (NYSE:ZTO) reported second-quarter financial results on Tuesday. The transcript from the company's second-quarter earnings call has been provided below.

Benzinga APIs provide real-time access to earnings call transcripts and financial data. Visit https://www.benzinga.com/apis/ to learn more.

The full earnings call is available at https://event.choruscall.com/mediaframe/webcast.html?webcastid=QEt3YhXl

Summary

ZTO Express (Cayman) reported a 6.5% year-over-year increase in parcel volume for Q2 2026, reaching 10.49 billion parcels, with market share expanding by 0.4 percentage points.

Adjusted net income rose by 50.3% year-over-year to 3.09 billion RMB, while total revenue grew by 23% to 14.5 billion RMB.

The company emphasized strategic initiatives focused on high-quality service, market share, and cost efficiencies, including the implementation of AI and digital tools to enhance operational efficiency.

Guidance for full-year parcel volume growth is updated to 6% to 10%, reflecting management's cautious optimism given current economic conditions.

Management highlighted the strategic importance of reverse logistics and retail parcels, reporting an 80% year-over-year increase in daily reverse logistics parcel volume.

The company is focused on maintaining a healthy competitive environment, improving service quality and cost efficiency, and expanding its high-value business portfolio.

ZTO Express (Cayman) is actively working to address potential cost impacts from regulatory changes regarding social insurance contributions for couriers, aligning with its long-term focus on sustainable development.

Full Transcript

OPERATOR

Good day and welcome to ZTO Express (Cayman)'s second quarter and half year 2026 financial results. All participants will be in a 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 touchtone phone, and to withdraw your question, please press star then two.

Please limit yourself to two questions. And please note that this event is being recorded. I would now like to turn the conference over to Ms. Sophie Lee, Company Secretary. Please go ahead.

Sophie Lee, Company Secretary

Thank you, Chuck. 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 website. On the call today from ZTO Express (Cayman) 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 Mrs. Yan who will go through the financials and guidance. They will both be available to answer your questions during the Q&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 and 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 achievements 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.

Thank you, Chairman Lai. Now let me do the translation first. Hello everyone. Thank you for joining today's conference call. In the second quarter of 2026, the express delivery industry grew 4.2% in volume year over year. As anti-involution policies continue to gain traction, competition became increasingly rational and the overall industry pricing and profitability experienced a steady recovery. The industry is fundamentally shifting from its previous singular focus on scale and price wars toward greater emphasis on value creation, network stability and tangible benefits for frontline partners.

ZTO Express (Cayman) made solid progress across key operating metrics. In the second quarter, parcel volume reached 10.49 billion, up 6.5% year over year, with market share expanding by 0.4 percentage points, entrenching our industry leadership position. Adjusted net income was 3.09 billion, up 50.3% year over year, reaffirming the resilience of our profitability. Retail parcel volume grew 47% year over year as our higher-value and diversifying value-added services continue to scale up, increasing revenue diversity for our network outlets.

While facing temporary cost pressures caused by oil price fluctuations during the quarter, our end-to-end digitization-led intelligent transformation combined with refined operational execution enabled us to lower the combined unit cost of transportation and sorting by 2 cents over last year, preserving cost competitiveness that were forged over the years. ZTO Express (Cayman)'s second quarter performance is the outcome of synergies across the following five core aspects: productive policy guidance, unwavering long-term strategic focus, solidarity and concerted efforts by network-wide partners, continuous increases in operational efficiency, and improving product structure. It also owes much to the hard-won contributions by thousands of outlets, operators and frontline delivery workers network-wide. First, regulatory direction remains clear and anti-involution policies were being consistently implemented. ZTO Express (Cayman) stands firm to safeguard a healthy competitive order, balances the interests of headquarters, franchisees and frontline practitioners, and commits to fostering a sustainable eco-network with equitable shares of benefits for all stakeholders.

Second, the company maintains a long-term mindset that discourages permanent short-term scale gain and continuously consolidates foundational strength for its mid- and long-term development. We regard steady profit increases for network outlets, sustained earnings growth for frontline couriers and healthy corporate development as our core operating objectives. And we continue to deepen our initiatives surrounding three key areas: market share expansion, service quality upgrading and end-to-end cost reduction.

Third, the entire network was unified with strategic alignment and increasingly advocated fairness and transparency in network policy making and implementation. We have an objective view on regional economic disparities and have further streamlined grassroots feedback by tailoring incentive schemes and support resources to match outlets' actual operating conditions. We have further optimized the profit distribution mechanism at the ground level through performance-based remuneration, hence steadily elevating the overall profitability and operational stability of the entire network.

Fourth, we are extending our know-how for efficiency gains to outlets. We have built a standardized and ongoing operational data analytical system to enable performance visibility and traceability. We continue to enhance last-mile ops efficiency through direct linkages, reducing organizational layers and expanding profit margins. Fifth, we continue to enhance our tiered high-value business portfolio by penetrating deeper into retail parcels and reverse logistics, which optimize the mix between standard e-commerce parcels and value-added services.

This also hedges against potential single-source fluctuations and strengthens the resilience of network profitability. China's express delivery industry is progressing from high-quantity competition to high-quality and sustainable development. Focusing on the strategic principle of achieving high-quality service, high-quality market share and low end-to-end costs, ZTO Express (Cayman) will further our tasks in the following five key areas. First, continue to safeguard an environment of fair competition.

We will adhere to regulatory guidance and take on a leadership role in maintaining the industry's overall competitive order. Second, improve integrated competitiveness in service, market share and cost. On service, we will focus on door-to-door capabilities to build a clearly differentiated brand awareness. On market share, we will refine customer segmentation, increasing the proportion of small- to medium-sized customers and value-added services.

On cost, we will establish benchmarks for comparable outlets and pass through the why, what and how of efficiency gains to the end nodes. Third, improve consistency of managerial capabilities across the network. We will standardize policies and customize improvement plans for loss-making outlets. By pushing down digitalization efforts, we will empower franchisee partners to reduce costs and grow revenue. We will encourage top-performing outlets to scale up and support struggling outlets in overcoming adversity to foster an eco-network of mutual benefit and shared prosperity.

Fourth, deepen digitization design and implementation. We will roll out hands-on trainings across the network, guide outlets in effectively utilizing tools to narrow gaps in volume, cost and service. We will also proactively align demand and capacity through careful planning. Fifth, ensure comprehensive safety management and protect grassroots rights. Regular safety inspections will be conducted to identify and eliminate hazards, enforce accountability at all levels and establish strict compliance boundaries such as safety, labor practice and taxation.

We will continue to refine courier incentive and compensation gains, safeguarding their legitimate rights and interests. Over the past two decades we have overcome adversity and weathered intense competition. We have always been clear-minded that scale is merely an outcome and quality is what truly matters. We are committed to our development principle that integrates service quality, market share and reasonable profitability. We practice our philosophy of shared success and we firmly believe that the headquarters, outlets and couriers are interdependent parts of that unity.

Only when all parties collectively improve operational efficiency and increase shares of benefits can the entire network achieve lasting stability and long-term success. Guided by our mission of bringing happiness to more people through our services, supported by a solid infrastructure foundation and sound financial strength, we will continue to harness digitization efficiency, maintain and strengthen cohesiveness and stability of our partner network.

We are confident and capable of achieving steady, sustainable growth across the entire network, navigating through industry or economic cycles and creating lasting value for industry participants and other investors. Now let's invite Ms. Yan to present the financial results and guidance.

OPERATOR

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. We ask that you please limit yourself to two questions, and at this time we'll pause momentarily to assemble our roster.

And the first question will come from Mr. Steve Koi with Goldman Sachs. Please go ahead.

Steve Koi, Analyst at Goldman Sachs

I'd like to ask a question about AI-driven efficiency gains. I've noticed that the company has deployed 3D digital twin and machine vision technologies at its sorting hubs, and upgraded voice customer service and network outlets, as well as accelerated regional management decision-making. Could you share ZTO Express (Cayman)'s high-level strategic thinking on digitalization and AI, as well as your thoughts on the specific use cases in the operational workflows and where it's been implemented?

Thank you.

Wen Yang, Chief Technology Officer

Thank you, Chairman, and now let me translate for CTO. The core value of AI lies in leveraging data from over 100 million daily parcels and our mature network operations to continuously optimize network-wide costs. It creates a self-reinforcing loop of lower cost and higher efficiency, building a digital technological moat that is not easily replicated. Today, AI runs through the entire chain from pickup to delivery and has translated into tangible gains, specifically as follows.

On the hub side, in transportation, our proprietary intelligent routing and dispatch system now covers six most common scenarios. By optimizing routes, it unlocks idle capacity, drives improvements in load rates, and shortens transit times. Route-coordinated parcel volume grew 120% year over year, and stranded parcels fell 15% in the first half of 2026. The cost saving achieved by AI in transportation accounted for about 10% of the total reduction in transportation cost.

In transit, our SmartPark system now covers all transit centers nationwide. Machine vision monitors operations in real time and flags 28 types of anomalies, from congestion to mis-sorting. Working with on-site alerts and 3D visualization dashboards, it closes the loop from detection to resolution. Loading efficiency rose, unloading efficiency rose 4%, and anomaly traceability coverage reached 88.4%. In management, our proprietary data agent now serves more than 2,000 managers at headquarters and provincial offices, fixing the problem of static reports and after-the-fact manual data pulls, thus cutting the time for routing analysis by more than 90%. Now on the outlet side, in pickup and delivery, our precision address system now covers more than 250,000 frontline couriers with building-level location accuracy of 99.98%. It supports dispatch applications from order grouping to route optimization, and its accuracy keeps improving as business volumes continue to grow. On the AI customer service front, more than 90% of merchant inquiries and ticketing are now resolved through AI self-service, effectively lowering labor costs.

On the consumer side, with AI stepping in earlier, customer satisfaction has risen from 80% to nearly 90%. On the management front, building on the data agent, we now push standardized best-practice playbooks to more than 6,000 outlets across our network with a response rate of 88%, narrowing the capability gap across outlets and enabling proven management practice to be replicated at scale. AI has become a core strategic driver for ZTO Express (Cayman).

Looking ahead, we will continue to deepen the integration of AI across our operations, converting technical breakthroughs into gains in both efficiency and service quality to further solidify our market leadership.

OPERATOR

The next question will come from Kweili Finn with Morgan Stanley. Please go ahead.

Kweili Finn, Analyst at Morgan Stanley

Thank you, operator. Thank you, management, for taking my questions, and congratulations on a very strong profit growth in the quarter. I have two questions. The first question is about the reverse logistics parcels. It's encouraging to see that the retail parcels have contributed a solid foundation for profit growth. Just wondering, in terms of daily volume, where are we now, and what's the implied year-on-year growth? Do we have any targets towards the peak season of this year and next year?

The second question is about social insurance. This year we start to hear more discussion about a full social insurance contribution implementation gradually pushed by regulators. I'm wondering what's the potential impact on our costs and operations. Specifically, historically we have seen that industry-wide cost inflation could be passed through by industry-wide price hikes. Do you think if there is any cost inflation related to this full social insurance contribution, the industry has opportunities to pass that cost inflation through?

Thank you.

Meisong Lai, Chairman

Thank you very much for your question. Let me translate for Chairman. The rapid growth of our retail parcel business, particularly reverse logistics parcels, is a key component of ZTO's high-quality strategy and product diversification. It demonstrates our leadership in customer service and quality, as well as the stability of our network. In the second quarter, average daily retail parcel volume exceeded 11.87 million, of which return parcels averaged approximately 9.8 million each day, increasing approximately 80% year over year.

Although the price of reverse logistics parcels has declined from the past as market competition continues, we expect per-parcel profitability in this business to continue to improve, supported by economies of scale and refined cost control. At present, reverse logistics parcels still generate higher per-parcel profit than standardized e-commerce parcels, effectively lifting the company's overall per-parcel profitability. Next year, again, our strategy is very clear.

We are seeking high-quality services, high-quality market share, and we aim to improve our capability for door-to-door services. We are focusing closely on the quality of our network earnings as well as our couriers' income increases. So the reverse parcel volume will continue to be a main driver for our product diversification as well as the profitability gain across the whole network. Let me translate and supplement where needed. With the critical data sharing system being implemented, regulators plan to advance a multi-tiered social security system for flex work arrangements, including express delivery personnel.

Together with anti-involution policies, these efforts aim to standardize employment practice, protect frontline workers' rights and interests, and drive high-quality industry development, which are consistent with ZTO Express (Cayman)'s core beliefs. The policy adopts an approach of a stepped rollout: social insurance contributions are being enforced for personnel with formal employment relationships, whereas occupational injury protection is being expanded for flexibility workers.

From the beginning, the company has consistently upheld the core philosophy of shared success, placing great importance on protecting the interests of our network partners and frontline workers. In our own workforce management, we have always adhered to industry practice boundaries, steadily improving our employment system, and encourage our network partners to provide legitimate rights of the frontline workers. We welcome the regulators' guidance on social security contributions for couriers and are actively encouraging and helping our network partners to address challenges for unique flex work arrangements.

While the rollout of standardized social security initiatives will inevitably bring about end-to-end cost increases in the foreseeable future, over the long run complete coverage will strengthen network stability, reduce courier turnover, and further reinforce last-mile service quality. ZTO Express (Cayman) will continue to stay at the forefront of the industry as it moves toward higher-quality development for the long term. Thank you.

OPERATOR

The next question will come from Aaron Lau with UBS. Please go ahead.

UNKNOWN, Analyst

Let me translate for myself. Thanks Ms. Lai, Ms. Yan and Sophie for taking my questions. The first one is regarding our new full-year volume guidance. I'd like to seek a bit more of your insights on the industry's second-half growth outlook and our company's strategic plan for the second half, and also on the cost side, do we have any cost guidance for the future and what is the sensitivity of our costs to oil prices? Thank you so much.

Sophie Lee, Company Secretary

Now let me translate for the first part of the question. As the anti-evolution party policy continued to take effect in the first half of the year, the express delivery industry has undergone a period of adjustment and has gradually shifted away from price-led scale expansion to quality-driven development leveraging operating efficiency. Looking ahead, the industry's transformation will continue to deepen, focusing more on improvements in service quality and operational efficiency.

We anticipate the parcel volume growth for the entire industry to be at a stable or steady level. As industry shifts towards high-quality development, the company remains committed to a sustainable long-term mindset rather than seeking short-term scale expansion. For us, the core of high-quality development comes down to increasing profitability of outlets, raising income by couriers, and healthy increasing profit for the company. Strategically, we will continue to focus on these priorities, growing effective market share, building differentiated service capabilities, and advancing end-to-end lean operations.

While solidifying our leadership in parcel volume, we will place greater emphasis on winning high-quality market share and maintaining sound profitability, continually shoring up our foundation for competitive growth for the medium to long term. If I may supplement, when you ask about the volume and the price, again, we will watch closely the industry's development as our goal continues to be growing and expanding our market share leadership.

Huiping Yan, Chief Financial Officer

The cost performance in the second quarter was affected by rising fuel prices, which put pressure on transportation costs and impacted per-parcel transportation cost by approximately $0.02. Thanks to continued implementation of efficiency-gain initiatives, which include smart tools, combined unit transportation costs and sorting costs declined by $0.02. Specifically, in the second quarter, transportation cost per parcel was $0.32, down $0.01 year over year.

The rising fuel costs added roughly about $0.02 to cost per parcel. On the cost-reduction front: first, we further implemented digitized smart tools using our proprietary intelligent dispatch system to forecast shipment flows in advance, optimize ship scheduling, refine load capacity structure and route planning in real time, while making prudent use of assisted driving systems to shorten transit times and effectively lower cost. Second, we refined our load rate metrics and assessment mechanism and rolled out tiered loading-rate incentives.

Third, we continued to strengthen fleet management, consistently refining a standardized cost model and using it as a benchmark to incentivize our drivers. Fuel cost impact on the transportation costs: diesel costs rose around 24% in the second quarter, which put pressure on line-haul transportation costs. Looking into the second half, the global environment remains highly uncertain. We do not expect oil prices to pull back meaningfully, so we expect fuel prices to continue to weigh on per-parcel transportation cost by about 1 to 2 cents.

To counter fuel price volatility, we are leveraging our opportunistic reserve of oil at a lower cost to offset, and we will continue to expand our fleet of natural-gas trucks, as well as actively exploring the deployment of electric vehicles that are suitable for express delivery operations. To be exact, because the first half—and particularly the second quarter—weight per parcel has increased, the total transportation cost has increased. In that sense, we actually achieved more than 10% cost efficiency on transportation.

Sorting cost in the second quarter was $0.24 RMB, down $0.01 year over year. On the equipment front, we steadily increased the level of automation with smart solutions for sorting equipment and also upgraded old equipment. Through real-time monitoring and early warning, we improved equipment utilization. On the labor cost front, we optimized shift scheduling through station-based staffing forecasts and re-cut procedures, enforced accountability at the individual level with clear rewards and penalties, thereby improving labor productivity.

For cost-reduction targets, we expect our core costs in transit operations to decline by $0.03 for the full year. Beyond transit operations, we are putting greater emphasis on end-to-end cost reduction by leveraging digital tools to strengthen outlet operations. We are confident we can improve service quality and reduce overall cost to help with our end-to-end total cost reduction for the entire year. Hope that answers your question.

UNKNOWN, Analyst

Thank you so much.

Sophie Lee, Company Secretary

So I believe this takes us to the bottom of the hour, and we thank everybody for joining us for the call. We look forward to having further conversations with you to share our view and on-the-ground practice as we move forward toward higher-quality development and sustainable returns for express delivery participants as well as our shareholders. Thank you very much.

OPERATOR

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

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.