Revenue Gains Led by International, Supply Chain & Freight; U.S. Economic Conditions Drive Earnings Decline
SINGAPORE, April 25, 2008 - UPS (NYSE:UPS) today reported increased revenue in all segments with double-digit gains in both international package and supply chain and freight operations. A sharp decline in U.S. economic activity, however, led to a 9.4% drop in diluted earnings per share to $0.87 compared to a prior-year adjusted $0.96.
In the Asia Pacific region, UPS's growth was driven by strong volume growth of over 15% in China and India as well as solid momentum across other markets.
"UPS in Asia is performing well with double digit growth in the first quarter. We successfully launched a new portfolio of enhanced services such as UPS Paperlesssm Invoice and International Returns® which have been well received in the marketplace, and raised the bar for premium delivery services in the industry, said Derek Woodward, President, UPS Asia Pacific. "We believe that in an environment of economic uncertainty, it is even more critical today for companies to operate efficiently and better manage their supply chain for greater competitive advantage. Our global network, technology and expertise position us well to serve this need."
Scott Davis, UPS chairman and CEO said, "in light of the difficult U.S. economic environment we will be extremely vigilant with respect to costs and will not lose our focus on growing the business. We will continue to invest in the infrastructure, new products and services that will enable our customers to succeed in the global marketplace. UPS has successfully managed its operations through many economic cycles and we will do so again."
In 2007, first quarter adjusted earnings per share excluded an impairment charge related to aging jet aircraft and expenses for a voluntary separation program. Including these charges, diluted earnings per share for the first quarter of 2008 increased 11.5% over the $0.78 per share reported in the prior year.
For the three months ended March 31, 2008, consolidated revenue increased 6.5% to $12.7 billion while consolidated average daily volume remained flat at 15.1 million packages per day. Consolidated average revenue per piece increased 5.4%.
Consolidated Results 1Q 2008 1Q 2007 1Q 2007 adjusted
Revenue $12.7 B $11.9 B
Operating profit $1.49 B $1.36 B $1.65 B
Operating margin 11.8 % 11.4 % 13.8 %
Average volume per day 15.13 M 15.13 M
Diluted earnings per share $0.87 $0.78 $0.96
During the first quarter, UPS delivered total consolidated volume of 968 million packages, unchanged from a year ago. Results were negatively affected by a shift from premium products, the timing of the Easter holiday and sharply rising fuel costs.
Cash Position
UPS ended the quarter with $1.48 billion in cash and marketable securities. UPS also:
Generated $1.62 billion in free cash flow, excluding an $850 million U.S. federal tax refund related to the company's withdrawal from the Central States Pension Plan.
Purchased 17.4 million shares at a cost of $1.24 billion, leaving $8.9 billion of the authorization remaining for purchases UPS expects to complete by the end of 2009.
Paid dividends totaling $893 million. The dividend was increased 7% during the quarter.
Invested $661 million in capital expenditures.
U.S. Domestic Package 1Q 2008 1Q 2007 1Q 2007 adjusted
Revenue $7.74 B $7.55 B
Operating profit $959 M $941 M $1.15 B
Operating margin 12.4 % 12.5 % 15.3 %
Average volume per day 13.25 M 13.29 M
The slowing U.S. economy not only reduced average daily volume in the U.S. by 0.3% for the quarter but also contributed to a shift away from premium products. Volume declined 3.8% for Next Day Air® and 2.9% for Deferred, while increasing 0.3% for Ground. Revenue per piece remained stable for all service levels, with consolidated revenue per piece increasing 2.7%.
The volume decrease, shift away from premium products and increased fuel costs during the quarter contributed to the declines in operating profit and margin.
International Package 1Q 2008 1Q 2007 1Q 2007 adjusted
Revenue $2.76 B $2.39 B
Operating profit $421 M 371 M $440 M
Operating margin 15.3 % 15.6 % 18.4 %
Average volume per day 1.88 M 1.84 M
The segment's performance, as expected, was negatively impacted by the timing of Easter, which resulted in two fewer operating days in Europe. The segment also experienced higher fuel costs in the quarter. Export volume increased approximately 10% in local operating days, which drove a 15.7% revenue increase. U.S. export volume growth was strong, leading to a balanced global performance with Asia, Europe and the U.S. each experiencing a double-digit increase.
Supply Chain and Freight 1Q 2008 1Q 2007 1Q 2007 adjusted
Revenue $2.18 B $1.97 B
Operating profit $113 M $46 M $54 M
Operating margin 5.2 % 2.3 % 2.7 %
Revenue increased almost 11%. Forwarding and Logistics revenue increased 12.8%, driven by the new air freight portfolio launched in January. LTL freight revenue grew 4.1% and was constrained by the slowing U.S. economy. Operating profit for the segment more than doubled.
Outlook
"We see no signs of economic strengthening in the second quarter," said Kurt Kuehn, UPS's chief financial officer. "As a result, the company expects earnings for the quarter in a range of $0.97 to $1.04 per diluted share compared to $1.04 for the second quarter of 2007."
Commenting on annual earnings guidance, Kuehn said, "Most forecasters are projecting that current anemic conditions will prevail for the remainder of the year. Therefore, we are reducing our 2008 earnings expectations to a range of $3.90 to $4.20 per diluted share.
"Despite the current state of the U.S. economy, the long-term growth fundamentals for our industry and for UPS are very favorable," Kuehn added. "Our international and supply chain businesses continue to offer great opportunity. In the U.S., we're positioning our small package business to weather this downturn and to be poised for economic recovery."
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 www.ups.com. To get UPS news direct, visit pressroom.ups.com/RSS.
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