International and Supply Chain Businesses Show Strength Despite Economic Weakness
Singapore, Oct. 24, 2008 -- UPS (NYSE:UPS) today reported diluted earnings per share of $0.96 for its third quarter on a 7.4% increase in revenue. This represents an 8.6% decline from the $1.05 per share reported on an adjusted basis for the comparable 2007 quarter. The company's international and supply chain businesses demonstrated strength despite a challenging global economic environment.
"UPS in the Asia Pacific region performed to expectations given the current challenging economic environment. Growth in the region for the quarter was driven mainly by China and India, with more than 10% and 15% growth respectively, compared with the same period last year. Our export volume from Asia to Europe also grew by more than 15%," said Derek Woodward, President of UPS Asia Pacific Region.
He continued, "This quarter marks the stellar 'delivery' of the 2008 Beijing Olympic Games, where UPS, as the official Logistics and Express Delivery Sponsor, successfully showcased our global network, technology and supply chain capabilities. Now, more than ever, our customers need such expertise to help them run their businesses more efficiently, achieve cost savings and operate with greater competitive advantage."
Unadjusted diluted earnings per share of $1.02 for the 2007 third quarter included a restructuring charge and related expenses for a supply chain business in France. Diluted earnings per share for this year's third quarter declined 5.9% compared to this amount.
"UPS managed the business well in this very tough economic climate," said Scott Davis, UPS's chairman and CEO. "We continue to see growth in our international and supply chain businesses while maintaining our focus on cost control and revenue management throughout our organization. UPS also is investing to ensure growth in the future so that the company will be even stronger when the global economy rebounds."
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3Q 2007 |
| Consolidated Results |
3Q 2008 |
3Q 2007 |
Adjusted |
| Revenue |
$13.11 B |
$12.21 B |
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| Operating profit |
$1.63 B |
$1.71 B |
$1.75 B |
| Operating margin |
12.4% |
14.0% |
14.4% |
| Average volume per day |
14.85 M |
15.25 M |
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| Diluted earnings per share |
$0.96 |
$1.02 |
$1.05 |
For the three months ended Sept. 30, 2008, consolidated revenue per piece increased 8.1% while package volume per day declined 2.6%. Operating profit declined 7% to $1.63 billion compared to adjusted operating profit last year. The decline was 4.4% on an unadjusted basis. Operating results were positively impacted by productivity gains and benefits from the two-month lag in fuel surcharges. These impacts were more than offset by economic deceleration and the high cost of fuel, which drove product mix changes.
Cash Position
For the first nine months of 2008, free cash flow remained strong at $4.6 billion, including $1 billion in U.S. federal tax refunds related to the company's withdrawal from the Central States Pension Plan. The company:
- Repurchased 48.5 million shares at a cost of $3.3 billion.
- Paid $1.8 billion in dividends.
- Invested $2.1 billion in capital expenditures.
- Ended the quarter with $1.8 billion in cash and short-term investments.
UPS experienced ample liquidity in the commercial paper market at very favorable rates.
| U.S. Domestic Package |
3Q 2008 |
3Q 2007 |
| Revenue |
$7.84 B |
$7.55 B |
| Operating profit |
$1.12 B |
$1.23 B |
| Operating margin |
14.2% |
16.3% |
| Average volume per day |
12.9 M |
13.4 M |
Average daily U.S. domestic volume declined 3.4%, reflecting on-going weakness in the U.S. economy. Air products posted declines of 6.4% and ground volume decreased 2.8%. Domestic revenue per piece increased 5.8%, led by UPS Next Day Air® rising 11% as a result of higher fuel surcharges and continued focus on revenue management. Third quarter results were positively impacted by about $90 million due to the two-month lag in fuel surcharges.
During the quarter, UPS expanded its customer service options for air package pick-up, enabling later pick-ups for urgent business needs for about one-quarter of all U.S. businesses.
| International Package |
3Q 2008 |
3Q 2007 |
| Revenue |
$2.95 B |
$2.53 B |
| Operating profit |
$386 M |
$428 M |
| Operating margin |
13.1% |
16.9% |
| Average volume per day |
1.90 M |
1.84 M |
Export volume per day increased 7%, outpacing the market, despite decelerating economic growth in most areas of the world. The company's broad global network and unique products, such as UPS Paperlesssm Invoice and international UPS Returns®, helped drive this gain. All major regions of the world posted solid volume increases although U.S. imports continued to decline. Revenue per piece was up 11.6%, aided by higher fuel surcharges and favorable foreign currency exchange rates.
UPS completed a highly successful logistics effort for the Olympic Games in China as the company "delivered" the games to the world.
Investment in global infrastructure expansion also continued. In the fourth quarter, UPS will open its new hub in Shanghai. This is the first hub constructed by a U.S. carrier in China and will link all of China via Shanghai to UPS's international network with direct service to the Americas, Europe and Asia.
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3Q 2007 |
| Supply Chain and Freight |
3Q 2008 |
3Q 2007 |
Adjusted |
| Revenue |
$2.32 B |
$2.13 B |
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| Operating profit |
$129 M |
$52 M |
$98 M |
| Operating margin |
5.6% |
2.4% |
4.6% |
All units in this segment contributed to revenue growth of 9%. Operating profit improved more than 30% on 2007 adjusted results; on unadjusted results, the improvement more than doubled.
The Forwarding and Logistics operations again demonstrated the momentum seen in the first half of the year. Customers have responded well to the enhanced air freight portfolio that UPS unveiled in January.
UPS Freight Less-Than-Truckload performance was negatively impacted by the slowing U.S. economy. Nonetheless, the company is investing in this business to enhance its value proposition. UPS Freight recently announced time-in-transit improvements on more than 3,000 U.S. lanes. Over the past 18 months, UPS Freight has accelerated transit times on more than 12,000 lanes.
Outlook
"We've taken steps to effectively manage our costs and enhance service levels in an environment that proved substantially worse than we initially anticipated, with significant slowing toward the end of the quarter," said Kurt Kuehn, UPS's chief financial officer. "Our focus on service, revenue management, cost reduction and our sound financial position will help us manage through these tough business conditions," Kuehn continued. "We've implemented a range of initiatives to ensure our network operation matches demand."
The CFO also noted UPS reduced its 2008 capital expenditure budget by $200 million to $2.8 billion and expects to reduce 2009 capital expenditures as well.
"Based on economic forecasts, we anticipate a challenging environment for a number of quarters going forward," he added. "We believe the U.S. consumer will be very conservative with spending this year. But we still expect 2008 earnings per share should be toward the lower end of the $3.50-to-$3.70 range that we provided mid-year."
UPS is the world's largest package delivery company and a global leader in supply chain services, offering an extensive range of options for synchronizing the movement of goods, information and funds. Headquartered in Atlanta, Ga., UPS serves more than 200 countries and territories worldwide. UPS's stock trades on the New York Stock Exchange (UPS) and 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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