Company Generates 2009 Free Cash Flow of $4.1 Billion; 2010 EPS Expected to Increase 17% to 32%
Beijing, Feb. 8, 2010 - UPS (NYSE: UPS) today announced diluted earnings per share of $0.75 for the fourth quarter of 2009, above the company's original guidance of $0.58 to 0.65 per share, due in large measure to strong performance by its international segment. That segment saw volume growth, a substantial gain in operating profit and improvement to a 16.7% operating margin.
The quarter's diluted earnings per share declined 9.6% compared to the $0.83 in adjusted diluted earnings per share a year ago. Reported earnings per share for 2008 were $0.25.
For 2009, UPS generated free cash flow of $4.1 billion and posted adjusted operating profit of $4.0 billion. On a reported basis, operating profit was $3.8 billion. Adjusted earnings per share were $2.31 and $2.14 on a reported basis.
In the Asia Pacific region, UPS's export volume grew 10% in the fourth quarter compared to the same period in 2008. UPS Hong Kong saw the strongest recovery with export volume growing more than 25% while Vietnam and Malaysia grew more than 20% and 15% respectively.
"During the fourth quarter, we saw a noticeable increase in our overall flow of goods," said Richard Loi, Head of China and Senior Vice President of UPS Asia Pacific Region. "China to Europe volumes grew by more than 15%, while intra-Asia volumes increased by more than 5%. Of course, the Chinese market has always been a top priority for UPS. With the official opening of UPS's Asia Pacific Hub in 2010, we will be the only logistics and supply chain solutions provider with two Air Hubs in China. We plan to continue extending the roots we have put down in China as part of our commitment to providing services to the Chinese market."
"We saw a strong lift in the flow of goods in the fourth quarter with Asia to Europe volumes jumping 20% and intra-Asia volumes growing nearly 10%," said Derek Woodward, President, UPS Asia Pacific. "UPS continued to invest throughout 2009 and our new intra-Asia hub is on track to begin operations. As business sentiments improve in 2010 and businesses position themselves for new opportunities, UPS is in a strong position to support their growth."
"UPS ended 2009 on a high note by leveraging network changes implemented throughout the year and executing flawlessly during the peak holiday shipping period, which was stronger than we had anticipated," said UPS Chairman and CEO Scott Davis. "The company demonstrated its ability to manage effectively in changing market conditions. UPS has emerged from the worst recession in decades leaner, more focused and better positioned to take advantage of increased global trade."
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4Q 2008 |
| Consolidated Results |
4Q 2009 |
4Q 2008 |
Adjusted |
| Revenue |
$12.38 B |
$12.70 B |
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| Operating profit |
$1.26 B |
$803 M |
$1.38 B |
| Operating margin |
10.2% |
6.3% |
10.9% |
| Average volume per day |
17.3 M |
17.3 M |
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| Diluted earnings per share |
$0.75 |
$0.25 |
$0.83 |
For the three months ended Dec. 31, 2009, package volume rose 1.4% to 1.1 billion pieces while average volume per day was unchanged at 17.3 million packages.
During the holiday shipping season, global volume exceeded 22 million packages on eight days, including two on which it exceeded 24 million packages. UPS experienced more delivery volume than in 2008 on each of the seven days before Christmas. A well-executed peak season operating plan and significant growth in online retail sales contributed to the stronger-than-expected results for the quarter.
For the full year, the company delivered 3.8 billion packages, an average of 15.1 million per day, down from 15.5 million in 2008. Revenue decreased 12% to $45.3 billion.
Cash Position
UPS ended 2009 in a strong financial position. In addition to exceptional free cash flow, UPS also:
- Paid $1.8 billion in dividends.
- Invested $1.6 billion in capital expenditures.
- Repurchased a total of 10.9 million shares for $569 million.
- Ended the year with $2.1 billion in cash and short-term investments.
| U.S. Domestic Package |
4Q 2009 |
4Q 2008 |
| Revenue |
$7.55 B |
$7.99 B |
| Operating profit |
$764 M |
$932 M |
| Operating margin |
10.1% |
11.7% |
| Average volume per day |
14.9 M |
15.1 M |
For the fourth quarter, air volume increased with Next Day Air® up 2.8% and deferred up 4.3%. However, ground volume per day was down 2.9%. Total U.S. average daily volume decreased 1.9%. Operating margin improved sequentially to 10.1%, the highest in 2009. The 5.2% decline in revenue per piece was driven primarily by lower fuel surcharges and weight declines.
In the quarter, UPS took the lead in the mobile shipping arena with the introduction of applications for iPhone, iPod and BlackBerry devices. In addition, the company expanded its WorldShip® platform with integration of a freight forwarding capability that complements its small package and LTL freight shipping processes.
On Jan. 8, 2010, UPS announced it was restructuring the U.S. Domestic Package segment. By leveraging technology and the management skills of its people, the company will create larger geographic operating entities and provide more marketing resources at the local level. The new structure will be in place by early April.
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4Q 2008 |
| International Package |
4Q 2009 |
4Q 2008 |
Adjusted |
| Revenue |
$2.79 B |
$2.64 B |
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| Operating profit |
$467 M |
$366 M |
$393 M |
| Operating margin |
16.7% |
13.9% |
14.9% |
| Average volume per day |
2.4 M |
2.2 M |
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International operating profit jumped 18.8% on an adjusted basis and 27.6% on a reported basis on revenue growth of 5.8%.
Average daily volume growth of 11.8% was driven by increases of 3.1% in export and 17.8% in domestic. These gains and strong cost management contributed to an operating margin of 16.7%, the highest since the fourth quarter of 2007. All regions experienced export volume growth, led by Asia and the United States. Domestic volume improvement was driven by a third-quarter acquisition in Turkey along with strong performance in Europe and Canada.
During the quarter, UPS continued investing for the future with the opening of its expanded hub in Toronto, Ontario, which more than doubled its package handling capability.
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4Q 2008 |
| Supply Chain and Freight |
4Q 2009 |
4Q 2008 |
Adjusted |
| Revenue |
$2.03 B |
$2.07 B |
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| Operating profit |
$28 M |
($495 M) |
$53 M |
| Operating margin |
1.4 % |
(23.9%) |
2.6% |
Reductions in segment revenue and operating profit were caused by declines in global forwarding and UPS Freight.
Forwarding's operating margin was challenged by rapidly escalating transportation costs stemming from a surge in demand in a capacity-constrained environment out of Asia.
The Logistics business recorded an increase in revenue, driven by growth in the healthcare sector. Improved operating efficiencies and contract management produced strong results.
UPS Freight experienced a difficult fourth quarter. Revenue per hundredweight increased, but shipments were flat and tonnage declined. The unit posted an operating loss for the quarter due to the extremely competitive pricing environment in the LTL business. Year-over-year, UPS Freight gained market share.
Outlook
"Economic forecasts indicate gradual improvement as 2010 unfolds," said Kurt Kuehn, UPS's chief financial officer. "The first quarter will be the most challenging of the year for UPS with profitability only slightly better than last year.
"For 2010, UPS will substantially improve performance by leveraging our extensive product portfolio and global network," Kuehn continued. "As a result, we anticipate that diluted earnings per share should be within a range of $2.70 to $3.05, an increase of 17% to 32% over 2009 results. We also expect cash generation to remain strong in 2010, with capital expenditures totaling $1.8 billion. This is well below our historical range but still supports growth opportunities."
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