Earnings at High End of Guidance Range; Volumes Improve Through Quarter
UPS (NYSE:UPS) today reported diluted earnings per share of $0.55 for
the third quarter on $11.2 billion in revenue. A stabilizing economic
environment led to improving volume trends during the quarter, while UPS's
International business continued to increase market share.
The $0.55 in diluted earnings per share was at the high end of the company's
guidance range of $0.45 to $0.55.
"I'm encouraged by the signs of economic recovery that are becoming apparent,
although we still have a long way to go," said Scott Davis, chairman and
CEO. "Ongoing strategic investment has positioned UPS to capitalize on
growth opportunities around the world. We are managing operations well,
while controlling costs and maintaining excellent service."
| Consolidated Results |
3Q 2009 |
3Q 2008 |
| Revenue |
$11.15 B |
$13.11 B |
| Operating profit |
$929 M |
$1.63 B |
| Operating margin |
8.3% |
12.4% |
| Average volume per day |
14.26 M |
14.85 M |
| Diluted earnings per share |
$0.55 |
$0.96 |
Consolidated volume for the three months ended Sept. 30, 2009, totaled 927
million packages, down 2.4% from the same period in 2008. Average daily
volume and revenue per piece declined 3.9% and 11.3%, respectively. Operating
profit decreased to $929 million as the benefits of substantial cost reductions
and productivity gains were more than offset by the economic impact of lower
volumes and changes in product mix.
Cash Position
Through effective management of capital
expenditures and working capital, UPS generated an impressive $3.4 billion in
free cash flow for the first nine months of 2009. The company also:
- Paid $1.3 billion in dividends.
- Invested $1.2 billion in capital expenditures.
- Repurchased 7.8 million shares at a cost of $396 million.
- Ended the quarter with $2.8 billion in cash and short-term investments.
| U.S. Domestic Package |
3Q 2009 |
3Q 2008 |
| Revenue |
$6.87 B |
$7.84 B |
| Operating profit |
$514 M |
$1.12 B |
| Operating margin |
7.5% |
14.2% |
| Average volume per day |
12.3 M |
12.9 M |
Total package volume was 799 million pieces, down 3.6%, reflecting the
weakness in the U.S. economy. Average daily volume declined 5.1%. While
Next Day Air® volume increased 2.4%, ground decreased 6.2%. Revenue per piece
declined 9.1% as a result of significantly lower fuel surcharges and
lighter-weight packages.
As part of its focus on the environment, UPS became the first small package
carrier to offer its customers the ability to offset the carbon emissions
generated by the transport of their packages within the United States. The
service is being well received and gives shippers the option of paying a small
fee that UPS matches to purchase carbon offsets.
| International Package |
3Q 2009 |
3Q 2008 |
| Revenue |
$2.42 B |
$2.95 B |
| Operating profit |
$313 M |
$386 M |
| Operating margin |
12.9% |
13.1% |
| Average volume per day |
1.97 M |
1.90 M |
International average daily volume rose 4%. Domestic volume increased
9.1% due to expansion of domestic services and an acquisition in
Turkey. Export volume per day declined 3.2%, outperforming the
market. Revenue per piece dropped 21%, reflecting the impacts of reduced
fuel surcharges, currency and product mix.
During the quarter, the London Organising Committee of the Olympic Games
named UPS the official logistics and express delivery supplier of the 2012
Games. UPS will oversee the Games Logistics and Command Centre as well as
manage all transportation and supply chain operations, including venue logistics
and transportation, warehousing services, customs brokerage, freight forwarding
and courier services.
| Supply Chain and Freight |
3Q 2009 |
3Q 2008 |
| Revenue |
$1.86 B |
$2.32 B |
| Operating profit |
$102 M |
$129 M |
| Operating margin |
5.5% |
5.6% |
Although revenue and operating profit declined in the quarter, operating
margin was flat with last year due to excellent revenue management and cost
control.
Both the Logistics and Forwarding business units experienced moderation in
the rate of revenue decline. The Logistics unit again achieved significant
growth from its services to the healthcare industry.
UPS Freight performance was negatively impacted by increasingly competitive
conditions in the freight environment. Nonetheless, the business
outperformed the market and gained share while maintaining yields.
Outlook
"The business environment in the third quarter
began similarly to that of the preceding quarter. However, we did see
profitability improvement due to effective cost management and firming volume
later in the quarter," said Kurt Kuehn, UPS's chief financial officer.
"We're confident in our ability to thrive by partnering with our customers
and providing them the services they need to grow," he continued. "UPS is
poised for the recovery when it comes. We've instituted cost initiatives
that will approach $1.4 billion this year, making UPS more efficient than
ever. In addition, we will reduce our 2009 capital expenditures to $1.7
billion, down $500 million from our initial budget."
Although there are signs of economic recovery, forecasters predict U.S.
consumers will spend conservatively for the holidays this year. "Our
customers have widely differing views on their outlook for the holiday season.
Nevertheless, UPS is primed to handle the seasonal package surge as it
materializes," Kuehn added. "Continuing our earnings momentum from the
third quarter, we expect earnings per diluted share within a range of $0.58 to
$0.65 for the fourth quarter.
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