Earnings call transcript: ZTO Express Q2 2025 misses earnings, stock dips

ZTO Express reported its second-quarter 2025 earnings, revealing a miss on both earnings per share (EPS) and revenue forecasts. The company posted an EPS of $2.37, below the expected $2.89, leading to a 17.99% negative surprise. Revenue came in at $11.83 billion, missing the forecasted $12.28 billion by 3.66%. Following the announcement, ZTO Express’s stock fell 2.33% in aftermarket trading, closing at $20.14, down from its previous close of $20.21. According to InvestingPro data, the company trades at a P/E ratio of 12.06, suggesting an attractive valuation despite the earnings miss.

Key Takeaways

• ZTO Express missed both EPS and revenue forecasts for Q2 2025.
• The company’s stock price decreased by 2.33% in aftermarket trading.
• Parcel volume increased by 16.5%, reaching 9.85 billion.
• Gross margin dropped significantly by 8.9 points to 24.9%.
• ZTO is advancing in technology with AI and autonomous vehicles.

Company Performance

ZTO Express experienced a challenging second quarter, with a notable decline in adjusted net income by 26.8% to RMB 2.05 billion. Despite a 10.3% increase in total revenue to RMB 11.8 billion, the company’s gross margin fell by 8.9 points, reflecting increased operational costs and competitive pressures. The express delivery industry saw a growth rate of 17.3% for the year, slowing to 15.1% in July, which may have affected ZTO’s performance. InvestingPro analysis shows the company maintains strong financial health with a GREAT overall score of 3.19, suggesting resilience despite current challenges.

Financial Highlights

• Revenue: RMB 11.8 billion, up 10.3% year-over-year
• Earnings per share: $2.37, below forecast
• Gross margin: 24.9%, down 8.9 points
• Parcel volume: 9.85 billion, up 16.5%
• Operating cash flow: RMB 2.2 billion, down 37.7%

Earnings vs. Forecast

ZTO Express’s EPS of $2.37 fell short of the $2.89 forecast, marking a 17.99% negative surprise. Revenue also missed expectations, coming in at $11.83 billion against a forecast of $12.28 billion. This underperformance contrasts with previous quarters where the company met or exceeded forecasts, raising concerns about its ability to maintain growth amid industry shifts.

Market Reaction

Following the earnings release, ZTO Express’s stock declined by 2.33% in aftermarket trading, reflecting investor disappointment. The stock’s current price of $20.14 is closer to its 52-week low of $16.34, suggesting bearish sentiment. InvestingPro’s Fair Value analysis indicates the stock is currently undervalued, while its negative beta of -0.17 suggests it typically moves opposite to market trends, potentially offering portfolio diversification benefits. The decline aligns with the missed earnings and revenue forecasts, overshadowing the company’s growth in parcel volume and technological advancements.

Outlook & Guidance

ZTO Express revised its parcel volume guidance for the year to between 38.8 and 40.1 billion, indicating a 14-18% annual increase. The company anticipates slower growth in the second half of 2025 but remains committed to improving service quality and operational efficiency through continued investments in technology and autonomous vehicles.

Executive Commentary

Chairman Mei Song Lai expressed optimism about the logistics industry’s growth prospects, stating, "We firmly believe in the vast growth prospects of China’s express delivery and the broader logistics industry." CFO Huiping Yan emphasized the importance of service quality over price competition, noting, "The future of competition for this industry lies with quality of services."

Risks and Challenges

• Competitive pressures in the express delivery market could impact margins.
• Slower industry growth rates may hinder revenue expansion.
• Increased operational costs could affect profitability.
• Dependence on technological advancements poses execution risks.
• Regulatory changes in key markets could affect operations.

Q&A

During the earnings call, analysts inquired about ZTO’s pricing dynamics in the Guangdong region, the strategy behind deploying autonomous vehicles, and the potential impact of e-commerce industry trends. Management highlighted the shift from price competition to service quality as a key strategic focus.

Full transcript - ZTO Express Cayman Inc (ZTO) Q2 2025:

Conference Operator: Please note, today’s event is being recorded. I would now like to turn the conference over to Sophie Li, Head of Capital Markets. Please go ahead.

Sophie Li, Head of Capital Markets, ZTO Express: Thank you, operator. 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 at ir.zto.com. On the call today from ZTO are Mr. Mei Song 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 and A session as 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 the current market and operating conditions and they 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 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. Meisong Lai. Mr. Lai will read through his prepared remarks in their entirety in Chinese before I translate for him in English.

Thank you, Chairman. Please allow me to translate first. Hello, everyone. Thank you for joining today’s conference call. In the 2025, the express delivery industry continued to maintain a robust growth with the business volume increasing by 17.3% year over year.

ZTO adhere to its quality first principle and with an industry leading service level, we grew parcel volume by 16.5 year on year to reach CNY9.85 billion and increased market share sequentially. Despite fierce market competition, ZTO achieved an adjusted net income of RMB2.05 billion. During the quarter, the trend towards a higher proportion of light and small parcel in the industry remained. As more merchants opted for more economical or affordable express delivery services. The value from ZTO’s premium pricing power underpinned by our extensive network scale and the leading service quality and stability was not fully realized.

In some regions, particularly major production zooms with extreme price competition, the volume growth came in lower than expected. In stark contrast, ZTO’s retail parcel volume grew over 50% year over year. Since last year, we have continuously focused on enhancing volume mix and upgrading service capability and efficiency. Leverage ongoing improvements in service quality such as timeliness, guarantee and the coverage expansion, retail parcels volume peaked over 8% of total volume during the quarter. This mixed optimization of volume structure alleviated the pressure from volume based subsidies, bringing positive unit contribution of $0.17 in revenue and CNY0.02 in gross profit for the core express delivery business.

Additionally, by further implementation of digitization of information and intelligent operations, optimizing resource allocation and assigning responsibility with clear accountability. We attained $0.07 productivity gain over the same period last year for combined unit cost of transportation and sortation. These achievements not only reflected our strategic commitment to improving operational capability and efficiency, but also validated that differentiated high quality products and services are the most critical elements for forging comprehensive competitive edge for the future. A healthy and stable eco network and long term confidence of franchisee partners are the foundation for the sustainable development of express delivery franchising model. ZTO’s enduring philosophy and the practice of shared success aligns well with government and the regulatory authorities’ intention and emphasize on safeguarding grassroots interest.

Backed by excellence in an efficient and a strong operational system, we consistently empower our network partners to achieve win win. Our initiatives aimed at effectively addressing front end empathy in press competition are steadily progressing forward with the following core focuses. First, optimizing network policies. Systematically identify all its costs through our various stage of pickup and delivery, ensuring rational policy alignment, standardize policies across similar outlets to improve transparency and fairness, implement precise incentive mechanisms tailored to market’s reliability and avoid blind and excessive subsidies. Second, enhancing last mile efficiency.

Install various automated sorting and transportation equipment at suitable outlets to reduce menu work and improve efficiency. Reduce all the costs through direct dispatch to last mile posts, allowing couriers to focus more time and energy on pickup and delivery. Third, incentivize retail response and fulfillment, further unifying goals and objectives and enforced profit allocation gravitated towards couriers so that they become self motivated to be responsive and timely in serving retail customers with increasing loyalty, hence achieving greater earnings. Fourth, we define value proposition of Last Milepost. While providing industry solutions to reduce delivery costs, integrate Last Milepost with lock boxes, convenience stores and other community livings and commerce contact points to establish multidimensional convenient and efficient consumer connections.

After more than twenty years of rapid development, China’s express delivery industry has built the world’s largest scale and the most efficient operations and has become one of the pillar industries of the China’s socioeconomic growth. As a key participant, ZTO has fully demonstrated that leading scale and operational efficiency are the cornerstone to and core driving force for existing healthy development. The industry dynamics are evolving and the shift from volume driven expansion to a balanced growth in both quantity and quality is evident and inevitable. Peer competition will elevate from basic delivery elements to comprehensive logistics solutioning powered by digitization, intelligent and smart operations in the final competitive landscape. Looking back, we have overcome adversity and earned a seat in the industry.

Through relentless effort and ingenuity, we followed and surpassed. Over the past decade, no matter the changes in the macroeconomic and industry changes, we have maintained course in our own path, achieving leadership in quantity quality, scale and profitability. Behind the ZTO brand are tens and thousands of employees and partners united in a shared mission. That is, while solving problems for others, we can afford better living of our own and we can bring happiness to more people. Looking ahead, the new economic and the competitive environment has put new challenges in front of us.

We firmly believe in the vast growth prospects of China’s express delivery and the broader logistics industry. ZTO’s unique culture, robust infrastructure and franchisee network, solid financial strength will support our long term strategic vision and ambition. With steady, fast execution, we will be able to collaborate with our partners to deliver long lasting value for others and society as well as returns to shareholders. Now let’s invite Mr. Yan to go over the financials results and guidance.

Speaker/Translator, ZTO Express: Thank you, Chairman Lai and Sophie. Hello to everyone on the call. As I

Huiping Yan, Chief Financial Officer, ZTO Express: go through our financials, 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 are posted on our website, and I’ll go through some of the highlights here. In the second quarter, we continued to prioritize quality, which helped to drive volume expansion and cost optimization. Our parcel volume reached CNY9.8 billion, which grew 16.5%. Adjusted net income decreased 26.8% to RMB2.1 billion, largely attributable to competition based price decline.

ASP for the core express delivery business decreased 4.7% or RMB0.06, and the breakdown are the following: $0.5 decrease from the decline in average weight per parcel and $0.18 decrease from higher volume incentives. These decreases were partially offset by a CNY0.17 positive contribution from increase in Ka volume, mainly comprised of headquarter contracted reverse logistics products and services. Total revenue increased 10.3% to RMB11.8 billion as a combined result of volume increase and price decline. Total cost of revenue was CNY 8,900,000,000.0, which increased 25.1%. Overall unit costs for the core express delivery business increased CNY $0.07 to CNY $0.08 9.

Combined unit cost of sorting and transportation decreased 11.1% or CNY $0.07 for the quarter, benefiting from economies of scale and various productivity gain initiatives. Specifically, unit cost for line haul transportation decreased 14% to $0.33 given enhanced route planning in conjunction with optimizing fleet operations and lower fuel cost. Unit sorting costs decreased 7% to CNY0.25, benefiting from automation and labor efficiency. Unit KA costs increased CNY0.15, which was in line with KA volume growth. Gross profit decreased 18.7% to RMB2.9 billion, and gross margin rate dropped 8.9 points to 24.9%.

SG and A, excluding SBC, grew 5.9% to RMB $621,000,000. SG

Speaker/Translator, ZTO Express: and

Huiping Yan, Chief Financial Officer, ZTO Express: A expenses, excluding SBC as a percentage of revenue, declined to 5.2%, reflecting strong corporate cost leverage. Income from operations decreased 23% to RMB 2,500,000,000.0 and associated margin dropped 9.1 points to 20.9%. Operating cash flow was CNY 2,200,000,000.0 for the quarter, representing a 37.7% decrease, primarily due to higher advances for expanded reverse logistics services and increased dividend without withholding tax payments. Adjusted EBITDA decreased 18.5% to CNY 3,500,000,000.0 and capital expenditure for second quarter totaled CNY 1,100,000,000.0. And we anticipate the annual CapEx in 2025 to be RMB5.5 billion to RMB6 billion.

Now moving on to our guidance. We are revising our parcel volume guidance to be in the range of CNY 38,800,000,000.0 to CNY 40,100,000,000.0, representing a 14% to 18% annual increases. Putting it into context, without any question, quality is first, then volume is mission critical to us. Meanwhile, there are no excuses for subsidies that are unproductive to us, the brand operator or to our network partners. That is what we mean reasonable earnings.

By assessing current market and operating conditions and given the visibility we have into the industry development for the second half of the year, we trust in the operational team’s commitment in delivering volume growth at pace with the industry average for the year, hence keeping ZTO’s market share intact. Above assessments and estimate represent management’s current and preliminary view, which are subject to change. Now this concludes our prepared remarks. Operator, please open the lines for questions. Thank you.

Conference Operator: Thank you, Today’s first question comes from Quinn Lei Pham with Morgan Stanley. Please go ahead.

Quinn Lei Pham, Analyst, Morgan Stanley: Thank you. Let me translate for myself. Thank you management for taking my questions. And thank you for the management and all stakeholders efforts in market share and profitability and service quality improvement. So I have two questions.

The first question is about the outlook for the second half of this year for this industry. We noticed that in our volume guidance, the implied volume growth for the second half of this year, actually the range is quite a wide one. And management also mentioned to still aim to grow in line with the industry. That said, this wide range of growth outlook is mainly because of potentially lots of uncertainties in growth for the industry. So what could be the key factors that potentially impact the second half twenty twenty five market growth outlook?

My second question is about technology and AI’s application. What are the new efforts and initiatives that we have adopted in this year? And what’s the impacts we have seen from these efforts on cost efficiency gain or on revenue generation or on service quality improvement? Thank you.

Huiping Yan, Chief Financial Officer, ZTO Express: Thank you very much for your question, and I’ll translate for Chairman. Yes, indeed, our volume growth was below our expectation set in the beginning of the year. Second quarter, however, we have seen that the sequential increase in our market share, specifically month May and June, we had experienced higher than industry average growth. Looking at the trend for the whole industry for January through July, the growth was 18.7%. And for the month of July, it was 15.1%.

So we do see a slight slowdown for the industry, and then we believe that second half of the year was most likely to be lower in its growth rate than the first half of the year. With that said, though, we would still continue to focus on our work, that is to achieve balanced improvements in growth for quality of services, volume and profit. Overall, we think that the recent market dynamics shift with some of the region’s price increases, smaller logistic fee free type of packages would mostly be impacted. And hence, in other words, it would most likely shrinking in its volume. So we’ve considered many factors such as these to adjust our overall guidance.

Yes, indeed, it is in a wide range because, again, there are still many uncertainties in the macroeconomic environment as well as in the industry competitive dynamics. So we do have an annual 14.14% to 18% guidance provided. Second question. In the recent years, CTO has directed attention and resources towards lean management and digitization to transform the way we make decisions and solve problems. Going forward, we will further integrate AI tools across all business segments, continuously driving cost efficiencies in serving the last mile fulfillment for our outlet operators for the frontline couriers so that they are able to reduce cost.

This year, some of our key initiatives included one at the sorting center level, the developed or developing three d digitized parallel model that enables remote management and real time monitoring provided automated early warning capabilities. And this model has allowed us to reduce frontline management headcount by one third and had cut miss sorting rates by more than 60%. In the last mile scenario for its planning, we are applying AI to scenarios such as site selection, design of the specifics of the direct linkage solution and directive delivery routes, empowering outlets to improve their intelligent planning capabilities. At the customer service front, we have embedded AI powered service agent system into merchants’ after sales support channels. These agent systems autonomously handle over 2,000,000 after sales requests daily, covering more than 90% of merchants’ service needs.

This not only significantly reduced costs for our outlets’ customer service operations, but also allowed seven days a week, twenty four hours a day service availability. At the employee level, we have launched the knowledge based Ask Xiaotong program, which now serves on average over 10,000 users daily. Through natural language queries, employees can quickly obtain accurate business knowledge and operational directions, hence effectively improve response time and reduce rates of errors. Hope that answers your question.

Conference Operator: Thank you. And our next question today comes from Luo Yu Zhang with Guo Shang Securities. Please go ahead.

Quinn Lei Pham, Analyst, Morgan Stanley: Let me translate myself. How do you view the sustainability of the current price increase in Guangdong? And what’s the impact of price increases in Guangdong on company profits? Thank you.

Huiping Yan, Chief Financial Officer, ZTO Express: Thank you very much for your question. As it’s evident that the first half of the year, the competition is quite fierce. In order for the industry to continue to grow, we must shift from volume price driven volume to quality of services in order to win market presence for the long run. We believe the industry will eventually return to census, and price competition is a short term behavior. Since August 5, the whole industry in Guangdong does have a slight price adjustment, It’s a positive adjustment upward.

The lowest price for the industry right now is 1.4, slightly improved compared to before. The impact to the company is less significant as it’s mainly for improvements in the relieving pressure for outlets and for the couriers so that they are able to receive higher delivery fee. As far as how it would sustain, we believe we tend to believe that there is a good possibility and good chance for it to last.

Conference Operator: Thank you. And our next question today comes from Aaron Luo with UBS. Please go ahead.

Speaker/Translator, ZTO Express: Let me translate for myself. Thanks, Ms. Lai, Ms. Yan and Sophie for taking my questions. I have three ones.

The first one is also about pricing. We knew that the price petition in the first half is very intense, but following the anti evolution campaign, already noted some price hikes already started in industry key regions. So what’s your views on the pricing development in the remaining of the year and also beyond? And the second question is about unmanned vehicles. We noted that they have very close cooperation with some leading providers.

So just curious about our current development on this and progress on this and also how much of a benefit we could see from this on driving up our last mile delivery efficiency also the cost benefit. The last question is about our shareholder return. Do we still see further room on improvement in terms of payout and share buybacks? Thank you so much.

Huiping Yan, Chief Financial Officer, ZTO Express: Now let me help translate and supplement where necessary. The first half of the year, the price pressure is quite significant and the competition is really fierce. In the past, typically, in the high season, price will return as opposed to in the low season, capacity need to be filled and the price will be low. For 2024, it wasn’t as such because during the high season, the price largely remained stable. In the beginning of this year, all the way through July, we have observed price decline and the trend remained.

Post August, the anti evolution initiatives did help slight increase in the market price. For those that are significantly and below cost, price practices were being strictly dealt with and addressed. We think in the future, no matter what the competition heat up to or slow down, For express delivery price to come in below one is not feasible because, again, this is a cost based pricing system. And we even strongly believe in the long run, a sustainable competitive landscape needs to go from price competition to value and capability competition. For the second question relating to autonomous vehicles.

Overall, ZTO has entered into commercialization in the early but successful testing stage of utilizing autonomous vehicles, drones and other self driving technology. And we are actively collaborating with industry leaders. Most of the industry leaders are not only developing their technology based on the AI autonomous driving technology development itself, which is rapid and also applying real case scenarios, we are one of the very application scenarios that’s well fitted. At the same time, we have been leveraging our in house serving and mapping qualifications because we do get that certification to make our

Speaker/Translator, ZTO Express: own

Huiping Yan, Chief Financial Officer, ZTO Express: maps. We have developed the capability to generate high precision maps to serve the delivery process. We have completed the parallel digitization model for over 50 sorting centers, enabling real time visualization of all operating elements, including personnel, vehicles, parcels and equipment facilities so as to support remote intelligent monitoring and control. These technology initiatives will continue to enhance network efficiencies and strengthen our core competitiveness. Autonomous vehicle have been also commercially deployed at some of our outlets and have shown significant results in cost reduction.

We have over 700 outlets in over 200 cities where the road permits were available the employees in total of over 2,000 autonomous vehicles to serve their delivery purposes. And this year, to further elaborate that the headquarter has accelerated the promotion of autonomous vehicles among outlets by offering central procurement and providing discounts in assisting in road right of way negotiations. In the second quarter, we reached a strategic cooperation agreement with a leading autonomous vehicle company to jointly explore the implementation of autonomous vehicle in last mile delivery scenarios and further enhance the performance and reliability. At the same time, since we do have a last mile focus, we have established an autonomous vehicle logistic platform to promote industry standardization. Currently, we have been working very closely with autonomous top autonomous vehicle company such as Neolix and etcetera.

In rolling out in the future more and more into more and more cities, we have two forty cities goal. We wanted to deliver more than 200,000 parcels daily with autonomous capabilities. At the outlets level, typically, the historical method of delivery, including vehicles and drivers, would cost about $0.12 to $0.15 each. But with the autonomous solution, the cost would go down to somewhere around $08 So that is a significant reduction. Now on the third question, on our shareholder payback and return of shareholder value.

The company has and will comprehensively consider both dividend and share repurchase as measures to gradually but consistently increase shareholder returns. Currently, we do have sufficient cash reserves and also strong cash generation capabilities, and we are arranging a reasonable capital flow structure. For repurchasing of the shares decisions, we are closely monitoring the market trend and stock performance while taking into account some of the uncertainties in the marketplace as well as our flexibility of financial arrangements. So going forward, we will continue to monitor and allocating capital and cash and increasing shareholder return.

Conference Operator: Thank you. Our next question today comes from Lisa Li, Equitable Securities. Please go ahead.

Speaker/Translator, ZTO Express: So

Lisa Li, Analyst, Equitable Securities: thank you management for taking my questions. So I just wonder what do you think about the potential impact on the overall e commerce industry and the industry parcel volume growth from the increase of the parcel price. So as management mentioned before, so a higher parcel price may depress on low parcel demand and the industry parcel volume growth may be slowing down the second half. So for the longer term, what do we see about a higher parcel price compared to growth of overall e commerce industry. So what do expect the government how the government maybe balance the growth and balance the price?

Thank you.

Huiping Yan, Chief Financial Officer, ZTO Express: It is in my opinion that the proper term to describe the recent trend should be that the price auto returned to sensibility. The competition in the recent past is the price and cost is disconnected. Nowadays, you see the lowest price in Guangdong is around RMB 1.4. But indeed, it is not necessarily impacting all the or majority of the delivery practices. The authorities paid attention to those extreme pricing practices that are well below the costs.

The intention is to protect the interest and benefits of many of the operators in the delivery businesses, including outlets and the couriers. Majority of the merchants, their price is still reasonable. And the impact of the price adjustments or returning of the sensibility is less impactful to them as opposed to for those extreme portion of small and light packages. We think that the differentiated product and services is important to our customers, to merchants as well as to consumers. So we all see that it is easy to reduce price, but price reduction doesn’t create value.

The future of competition for this industry lies with quality of services, differentiated products services to meet different demand or needs. So we think that, and I strongly believe has always been, that the impact is less at this point. And going forward, the longer term betterment of this industry is to shift from price competition for volume to quality of services gaining both economic gain as well as volume increases. That is the only way to have a sustainable growth for the industry.

Conference Operator: Thank you. This concludes our question and answer session. I’d like to turn the conference back over to management for closing remarks.

Huiping Yan, Chief Financial Officer, ZTO Express: Thank you very much for everyone joining of today’s call. And we are anticipating conversations with you and discussions with you for anything that you have questions on. And thank you again.

Conference Operator: You. This concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.

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