ZTO Express (Cayman) Inc. (ZTO) Earnings

Management highlights

- Industry Context - The Chinese express delivery industry grew 4.2% in total parcel volume year-over-year in Q2 2026. - Anti-involution regulatory policies have driven a shift from historical price wars and scale-only competition to rational competition, with steady recovery in industry pricing and profitability, and a transition to high-quality sustainable development focused on value creation. - The industry is now in a new development stage centered on the "two high and one low" strategic core: high-quality service, high-quality market share, and low end-to-end full chain cost. - Core Strategic Direction - ZTO maintains a long-term mindset, rejecting unsustainable short-term scale expansion, and prioritizes stable outlet profitability, sustained earnings for frontline couriers, and healthy corporate development. - The company remains focused on three core priorities: market share expansion, service quality upgrading, and end-to-end cost reduction. - ZTO is committed to building a sustainable shared network ecosystem that balances interests across headquarters, franchisees, and frontline workers, with fair benefit sharing for all stakeholders. - Operational Progress and Initiatives - Digitization and AI integration have delivered tangible efficiency gains across the entire pickup-to-delivery chain, creating a hard-to-replicate competitive moat based on data from over 100 million daily parcels. - ZTO has optimized network-level profit distribution via performance-based remuneration, tailored incentives for different regional operating conditions, and streamlined grassroots feedback mechanisms, improving overall network profitability and stability. - High-value diversified services (retail parcels, reverse logistics) continue to scale, improving revenue and profit diversification and hedging against single-source volume fluctuations. - Planned core initiatives going forward include: maintaining fair industry competition per regulatory guidance, strengthening differentiated door-to-door service capabilities, refining customer segmentation to grow small-to-medium customer and value-added service share, standardizing network policies to support loss-making outlets, deepening AI/digitization rollout with hands-on training for partners, enforcing comprehensive compliance and safety management, and protecting frontline worker rights and interests.

Guidance

- Full-year 2026 parcel volume growth guidance is revised to 6% to 10% year-over-year, corresponding to a total full-year volume range of 40.83 billion to 42.37 billion parcels. - Full-year 2026 capital expenditure guidance is maintained at approximately 6 billion RMB. - Management expects industry parcel volume growth in the second half of 2026 to remain at a reasonable steady level. - ZTO targets a full-year 2026 reduction in combined unit sorting and transportation costs of 3 percentage points, enabled by digital optimization and lean operations. - Oil prices are expected to continue weighing on per-parcel transportation costs by approximately 1 to 2 cents for full-year 2026, due to ongoing global uncertainty.

Segment performance

ZTO reports only one core product segment, the express delivery business, with additional growth from diversified high-value services including retail and reverse logistics parcels. In Q2 2026: Total parcel volume reached 10.49 billion, up 6.5% year-over-year, with market share expanding 0.4 percentage points. Adjusted net income was 3.09 billion RMB, up 50.3% year-over-year. Retail parcel volume grew 47% year-over-year, with average daily retail parcel volume exceeding 11.7 million units (reverse logistics parcels accounting for 9.8 million daily units, up 80% year-over-year). Reverse logistics/retail parcels contribute higher per-parcel profit than standard e-commerce parcels, lifting overall company profitability. Core express delivery ASP rose 15.5% (19 cents), driven by 17 cents of mix impact from higher value KA and reverse logistics volume, plus 2 cents from higher average per-parcel rates. Gross profit increased 26.8% to 3.7 billion RMB, with gross margin expanding 0.8 percentage points to 25.7%. Operating income grew 30.4% to 3.2 billion RMB, with operating margin expanding 1.3 percentage points to 22.2%. Adjusted EBITDA increased 20% to 4.2 billion RMB. Operating cash flow totaled 4.6 billion RMB. Combined unit sorting and transportation costs decreased 3.2% (2 cents) year-over-year despite oil price pressures: unit line haul transportation cost decreased 3.7% to 32 cents, and unit sorting cost decreased 2.6% to 24 cents. Capital expenditure for Q2 2026 was 952 million RMB.

Risks & headwinds

- Oil price volatility driven by global geopolitical and macroeconomic uncertainty creates ongoing upward pressure on transportation costs. - Gradual implementation of full mandatory social security contributions for express delivery workers will bring measurable end-to-end cost increases for the industry and the company in the foreseeable future. - Actual results may differ materially from forward-looking guidance due to known and unknown risks, uncertainties, and other factors beyond management's control, as detailed in ZTO's SEC filings. - Persistent irrational industry competition could pressure pricing and profitability, though anti-involution policies have reduced this risk in recent quarters.

Analyst Q&A

• Q: The analyst notes ZTO has deployed AI and digital tools across sorting hubs, customer service, and management decision-making, and asks for ZTO's high-level strategic thinking on AI and details on operational use cases and benefits. /

  A: For ZTO, AI is a core strategic driver that leverages daily parcel data and mature network operations to continuously reduce network-wide costs, creating a hard-to-replicate digital competitive advantage. AI has delivered tangible efficiency gains across the full operation: intelligent routing reduced transportation costs by unlocking idle capacity, machine vision at sorting hubs increased decoding efficiency 4% and covers 88.4% of operational anomaly traceability, AI data agents cut management analysis time by over 90%, the precision address system has 99.98% building-level accuracy for 250,000+ couriers, and AI handles over 90% of merchant inquiries cutting labor costs while lifting consumer satisfaction to nearly 90%. ZTO will continue to deepen AI integration across operations to convert technical progress into both efficiency and service quality gains.

• Q: The analyst asks for current daily volume and year-over-year growth of reverse logistics parcels, as well as 2026 peak season and 2027 growth targets, plus asks about the potential cost impact of mandatory full social security contributions and whether the industry can pass through this cost via price increases. /

  A: In Q2 2026, ZTO averaged 11.7 million daily retail parcels, 9.8 million of which were reverse logistics return parcels, representing 80% year-over-year growth. While reverse logistics prices have declined with competition, economies of scale and refined cost control are expected to continue lifting per-parcel profitability, which already exceeds that of standard e-commerce parcels. ZTO's strategy continues to prioritize high-quality profitable growth for this diversified business segment. On social security, regulators are rolling out a multi-tiered system that enforces contributions for formal employees and expands injury protection for flexible workers, aligning with ZTO's focus on protecting frontline worker interests. While full implementation will bring end-to-end cost increases, long-term it will improve network stability; ZTO is supporting network partners to adapt to the new requirements.

• Q: The analyst asks for ZTO's outlook on second-half 2026 industry growth, ZTO's second-half strategic priorities, full-year cost guidance, and cost sensitivity to oil price changes. /

  A: The industry's shift to high-quality development will continue deepening in the second half, with growth expected to stabilize at reasonable levels, focused more on service quality and efficiency improvement rather than raw scale growth. ZTO will retain its long-term focus, prioritizing outlet profitability, courier income growth, and healthy company profit over short-term scale expansion, continuing to focus on growing high-quality market share, building differentiated services, and advancing end-to-end lean operations. In Q2 2026, a 24% average diesel price increase added ~2 cents to per-parcel transportation costs, but digital efficiency gains offset this pressure to deliver a 2 cent net reduction in combined sorting and transportation costs. For the full year, oil prices are expected to add 1-2 cents to per-parcel transportation costs, but ZTO is offsetting this via lower-cost fuel reserves, natural gas truck fleet expansion, EV deployment, and ongoing optimization, and remains on track to deliver a 3 percentage point full-year reduction in combined sorting and transportation costs.