UPS India Records Export Volume Growth of More than 20%
Asia Pacific-Europe Trade Lane Volume Grows Steadily; Global Supply Chain & Freight Exceeds Expectations
Mumbai, INDIA, July 25, 2008 - UPS (NYSE:UPS) today reported a 6.7% revenue increase in the second quarter but an 18.3% decline in diluted earnings per share to $0.85 compared to $1.04 the prior year. Increasing fuel costs and a stagnant U.S. economy caused the earnings decline in both the U.S. Domestic and International Package segments. In contrast, the Supply Chain and Freight segment posted a substantial improvement in profitability. Also, UPS India reported a more than 20% growth in export volume for the quarter and nearly 20% year-to-date growth.
"In the Asia Pacific region, our export volume to Europe for the quarter grew more than 20% compared to the same period last year. Overall, UPS's export volume growth in Asia was driven by strong export volume from South Asia including more than 20% growth from India and more than 10% growth from Malaysia," said Derek Woodward, President, UPS Asia Pacific.
"We are actively working to enhance our customer focus in Asia. Highlights of the quarter included assuming full control of our joint venture operation in Korea, announcing plans to move our intra-Asia air hub to Shenzhen from the Philippines to reduce transit times, and the introduction of five weekly flights between Nagoya, Japan and Shanghai to meet growing intra-Asia customer demand."
"India's healthy growth of more than 20% in export volume is representative of its market potential. This growth can be attributed to UPS's initiatives in the area of our service expansion alongwith the launch of new products for our customers." said Pirojshaw Sarkari, Managing Director, UPS Jetair Express Pvt. Ltd.
Scott Davis, UPS chairman and CEO said, "Although operating conditions in the second quarter were challenging, UPS firmly believes the long-term growth fundamentals for our company and for our industry are very favorable. We are helping our customers manage through this difficult period while doing everything we can inside UPS to adapt to current conditions."
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| Consolidated Results |
2Q 2008 |
2Q 2007 |
| Revenue |
$13.00 B |
$12.19 B |
| Operating profit |
$1.45 B |
$1.77 B |
| Operating margin |
11.20% |
14.50% |
| Average volume per day |
15.0 M |
15.0 M |
| Diluted earnings per share |
$0.85 |
$1.04 |
For the three months ended June 30, 2008, UPS delivered consolidated volume of 959 million packages, essentially unchanged from the second quarter last year. Revenue rose to $13.0 billion and revenue per piece increased 5.9%. Results were negatively affected by a 67% increase in fuel expense, a reduction in premium product volumes and weakness in U.S. imports.
Cash Position
For the first six months of 2008, free cash flow remained strong at $3.4 billion, including approximately $1 billion in U.S. federal cash tax benefits related to the company's withdrawal from the Central States Pension Plan. The company also:
- Purchased 34.8 million shares at a cost of $2.4 billion.
- Paid dividends totaling $1.3 billion.
- Invested $1.4 billion in capital expenditures.
- Ended the quarter with $1.7 billion in cash and short-term investments.
| U.S. Domestic Package |
2Q 2008 |
2Q 2007 |
| Revenue |
$7.71 B |
$7.58 B |
| Operating profit |
$0.90 B |
$1.19 B |
| Operating margin |
11.70% |
15.70% |
| Average volume per day |
13.1 M |
13.2 M |
The slow U.S. economy caused average daily volume in the United States to decline 1.3% in the quarter and also contributed to a more pronounced reduction in premium products than in the previous quarter. Volumes per day declined 6.1% for Next Day Air®, 2.3% for deferred air and 0.7% for ground. Consolidated revenue per piece rose 3.1%, increasing for all services.
These factors, along with the rapid increase in fuel cost and the impact of the two-month lag in the application of the fuel surcharge, were responsible for the declines in second quarter operating results.
During the quarter, UPS and DHL announced they were working on a 10-year agreement through which UPS would provide air lift for DHL's express, deferred and international volume within the U.S. and between the U.S., Canada and Mexico.
| International Package |
2Q 2008 |
2Q 2007 |
| Revenue |
$2.95 B |
$2.50 B |
| Operating profit |
$407 M |
$475 M |
| Operating margin |
13.80% |
19.00% |
| Average volume per day |
1.93 M |
1.80 M |
International results were negatively impacted by higher fuel costs, declining U.S. import volume and slower growth in premium services in the major regions of the world.
Export volume increased an industry-leading 10.2%, aided by the calendar effect of an early Easter, which boosted growth rates by approximately 2%. However, volume growth slowed significantly through the quarter.
During the period, UPS continued its global investments. In the United Kingdom, the company completed network integration of Tamworth, its largest ground hub outside the U.S. In Asia, UPS announced construction of an intra-Asia hub in Shenzhen, China; initiated five weekly flights to Nagoya, Japan, and concluded the buyout of its joint venture partner in Korea.
| Supply Chain and Freight |
2Q 2008 |
2Q 2007 |
| Revenue |
$2.34 B |
$2.11 B |
| Operating profit |
$148 M |
$98 M |
| Operating margin |
6.30% |
4.60% |
Segment revenue increased almost 11% with operating profit climbing more than 50%. Results were driven by the continued strong performance of the Forwarding and Logistics businesses. During the quarter, UPS announced an expansion of its logistics campus in Burlington, Ontario, to address healthcare and high-tech customers' needs.
UPS Freight LTL revenue grew 7.2%, but shipments declined 2.3% as a consequence of the stagnant U.S. economy. UPS Freight expanded its reliability guarantee on shipments to and from Canada and introduced time-in-transit enhancements to 1,000 lanes in the United States.
Outlook
"Slow U.S. economic activity and fuel price increases hit us and our customers during the quarter," said Kurt Kuehn, UPS's chief financial officer. "Even though economists do not predict a recovery until 2009, we anticipate that the second half of 2008 will generate modestly better results than the first half, assuming business conditions do not worsen. Therefore, we are providing earnings-per-share guidance for 2008 within a range of $3.50 to $3.70. This translates to a range of $1.78-to-$1.98 for the second half compared to $1.72 for the first half."
Kuehn pointed out that comparisons to last year's results would be more difficult in the third quarter and moderate in the fourth.
"We are taking the necessary steps to control costs, add value for customers and grow our business while adjusting to the realities of today's challenging environment," Kuehn added.
UPS (NYSE: UPS) is the world's largest package delivery company and a global leader in supply chain and freight services. With more than a century of experience in transportation and logistics, UPS is a leading global trade expert equipped with a broad portfolio of solutions. Headquartered in Atlanta, Ga., UPS serves more than 200 countries and territories worldwide. The company can be found on the Web at UPS.com. To get UPS news direct, visit pressroom.ups.com/RSS.
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