Global Economic Slump Drives Earnings Decline; UPS Gains Market Share Worldwide
ATLANTA, April 23, 2009 - UPS (NYSE:UPS) today reported
adjusted diluted earnings per share of $0.52 for the first quarter of 2009
compared to the $0.87 reported for the prior-year period. Revenue was off
13.7% at $10.9 billion. The continuing deterioration in global economic activity
resulted in decreased revenue and profitability in all business segments.
Adjusted diluted earnings per share exclude an impairment charge related to
the earlier-than-expected retirement of aging aircraft. Including this non-cash
charge, diluted earnings per share were $0.40.
The company managed its business effectively despite the effects of the
global economic slump. UPS maintained its industry-leading small package
margins and expanded its market share both domestically and overseas while
generating strong cash flow. The company continues to make strategic
investments such as expanding its Worldport facility, building a new air hub in
Shenzhen, China, and opening new healthcare distribution facilities in Europe
and Puerto Rico. However, it is scaling back 2009 capital spending by an
additional $200 million, bringing the total to just below $2 billion.
"As economic activity deteriorated throughout the world during the quarter,
we managed costs while maintaining our excellent service to our customers," said
Scott Davis, UPS's chairman and CEO. "We are optimistic about the company's
future. UPS is becoming an even leaner, more efficient enterprise, making
many improvements that are sustainable when the economic climate
strengthens."
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|
1Q 2009 |
|
| Consolidated Results |
1Q 2009 |
Adjusted |
1Q 2008 |
| Revenue |
$10.9 B |
|
$12.7 B |
| Operating profit |
$718 M |
$899 M |
$1.49 B |
| Operating margin |
6.6 % |
8.2 % |
11.8 % |
| Average volume per day |
14.54 M |
|
15.13 M |
| Diluted earnings per share |
$0.40 |
$0.52 |
$0.87 |
For the three months ended March 31, 2009, consolidated average daily volume
totaled 14.5 million packages, a 3.9% decline. Average revenue per piece
decreased 6.9%, reflecting changes in product mix, declining fuel surcharges and
weight per package and the negative impact of currency.
During the quarter, UPS took an impairment charge on its entire fleet of 44
DC-8 aircraft, including related engines and parts. As a result, the
company recorded a non-cash charge to expense of $181 million, which reduced net
income and diluted earnings per share by $116 million and $0.12,
respectively. The entire charge was recorded in the U.S. Domestic Package
segment. Retirement of the DC-8s will make UPS's air fleet the most modern,
fuel efficient and noise compliant in the industry.
Cash Position
UPS ended the quarter with $4.3 billion in
cash and marketable securities. The company also:
- Generated $1.9 billion in free cash flow, a $200 million increase over last
year (excluding the impact of tax refunds in 2008).
- Paid dividends totaling $449 million.
- Invested $382 million in capital expenditures.
- Purchased 2.5 million shares at a cost of $113 million.
UPS also successfully completed a $2 billion debt offering during the
quarter. The 5- and 10-year offerings were oversubscribed at very favorable
interest rates of 3 7/8% and 5 1/8%, respectively, reflecting the marketplace's
view of the company's strength.
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|
1Q 2009 |
|
| U.S. Domestic Package |
1Q 2009 |
Adjusted |
1Q 2008 |
| Revenue |
$6.95 B |
|
$7.74 B |
| Operating profit |
$384 M |
$565 M |
$959 M |
| Operating margin |
5.5 % |
8.1 % |
12.4 % |
| Average volume per day |
12.68 M |
|
13.25 M |
The negative effect of economic conditions more than offset the company's
market share gain due to the departure of a major competitor. Volume per
day declined 4.3% during the quarter with Next Day Air® down 0.7%, deferred down
1% and ground off 5%. Revenue per piece declined 4.6%, reflecting product
mix changes, the decrease in fuel surcharges on all products and the continuing
trend toward lighter weight packages.
During the quarter, UPS expanded its guaranteed early morning delivery
territory in the United States to more than 23,000 ZIP codes. UPS now
delivers overnight by 8:30 a.m. or 10:30 a.m. to more businesses and ZIP codes
than any other transportation provider. The company also began testing a
new flexible returns program that allows consumers to return items shipped via
UPS by placing them in their own mailboxes for pickup by the U.S. Postal Service
before transfer to UPS. Lastly, UPS deployed 300 new compressed natural gas
delivery vehicles, adding to the largest private fleet of alternative-fuel
vehicles in the industry.
| International Package |
1Q 2009 |
1Q 2008 |
| Revenue |
$2.24 B |
$2.76 B |
| Operating profit |
$294 M |
$421 M |
| Operating margin |
13.1 % |
15.3 % |
| Average volume per day |
1.86 M |
1.88 M |
The International Package segment showed resilience during the quarter,
gaining substantial market share in both export and non-U.S. domestic
products. Despite challenging market conditions, the segment posted a 1%
volume decline with some benefit from the timing of Easter.
The 15.3% decline in revenue per piece reflected similar negative trends as
in the U.S. small package operation as well as the negative impact of currency.
Reductions in operating profit and margin were caused primarily by volume
declines, changes in mix and lower package weight, although at 13.1% the
segment's operating margin remains the highest in the industry.
| Supply Chain and Freight |
1Q 2009 |
1Q 2008 |
| Revenue |
$1.75 B |
$2.18 B |
| Operating profit |
$40 M |
$113 M |
| Operating margin |
2.3 % |
5.2% |
All business units in the segment recorded revenue declines, offset somewhat
by successful cost control efforts. Forwarding and Logistics experienced
minimal reduction in operating margin. In particular, the Logistics
business continued to benefit from UPS's investment in the healthcare
sector.
In a worsening LTL environment, UPS Freight posted declines in revenue,
shipments and tonnage, compared with last year. However, there was
month-over-month improvement in each of these metrics through the
period. The business unit experienced increasing sales traction as more
customers adopted its LTL shipping technology.
Outlook
"We're pleased that our cost control initiatives
are on plan and producing the benefits they were designed to achieve. In
fact, we have identified $300 million in additional initiatives to help offset
some of the recessionary impacts we're experiencing," said Kurt Kuehn, UPS's
chief financial officer.
"Economic indicators tell us recovery in the U.S. might begin late this year,
but more likely not until 2010," he continued. "So we expect the second
quarter will be another difficult one. As a result, UPS anticipates
earnings per diluted share in a range of $0.45 to $0.55.
"UPS is financially the strongest company in our Industry," Kuehn concluded.
"This strength, coupled with our broad product portfolio and the most extensive
international presence, will help ensure our customers receive the best in
transportation solutions and service."
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.
# # #
 View the full financial tables
EDITOR'S NOTE:
UPS Chairman and CEO Scott Davis
and CFO Kurt Kuehn will discuss first quarter results with investors and
analysts during a conference call at 8:30 a.m. EDT today. That call is
open to listeners through a live Webcast. To access the call, go to investor.shareholder.com/ups
and click on "Earnings Webcast."
UPS routinely posts investor announcements on its web site -
investor.shareholder.com/ups - and encourages those interested in the company to
check there frequently.
We supplement the reporting of our financial information determined under
generally accepted accounting principles (GAAP) with certain non-GAAP financial
measures, including, as applicable, "as adjusted" operating profit, operating
margin, pre-tax income, net income and earnings per share. We believe that
these adjusted measures provide meaningful information to assist investors and
analysts in understanding our financial results and assessing our prospects for
future performance. We believe these adjusted financial measures are
important indicators of our recurring operations because they exclude items that
may not be indicative of or are unrelated to our core operating results, and
provide a better baseline for analyzing trends in our underlying
businesses. Furthermore, we use these adjusted financial measures to
determine awards for our management personnel under our incentive compensation
plans. We also provide the amount of our free cash flow to supplement our
cash flow determined under GAAP. We define free cash flow as net cash from
operating activities adjusted for capital expenditures, proceeds from disposals
of property, plant and equipment, net change in finance receivables and other
investing activities. We believe free cash flow is an important measure in
assessing the generation of cash for discretionary investments and
dividends.
In the first quarter of 2009, we recorded a $181 million pre-tax impairment
charge related to our McDonnell-Douglas DC-8-71 and DC-8-73 aircraft
fleets. We presented first quarter 2009 operating profit, operating
margin, pre-tax income, net income and earnings per share excluding the impact
of this item as we believe these adjusted measures better enable shareowners to
focus on period-over-period operating performance. The underlying matters
that produced the impairment charge were unique, and we do not believe they are
reflective of the types of charges that will affect future anticipated
results.
Because non-GAAP financial measures are not standardized, it may not be
possible to compare these financial measures with other companies' non-GAAP
financial measures having the same or similar names. These adjusted
financial measures should not be considered in isolation or as a substitute for
GAAP operating profit, operating margin, net income and earnings per share, the
most directly comparable GAAP financial measures. These non-GAAP financial
measures reflect an additional way of viewing aspects of our operations that,
when viewed with our GAAP results and the preceding reconciliations to
corresponding GAAP financial measures, provide a more complete understanding of
our business. We strongly encourage investors to review our financial
statements and publicly-filed reports in their entirety and not to rely on any
single financial measure.
Except for historical information contained herein, the statements made in
this release constitute forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Such forward-looking statements, including statements regarding the
intent, belief or current expectations of UPS and its management regarding the
company's strategic directions, prospects and future results, involve certain
risks and uncertainties. Certain factors may cause actual results to
differ materially from those contained in the forward-looking statements,
including economic and other conditions in the markets in which we operate,
governmental regulations, our competitive environment, strikes, work stoppages
and slowdowns, increases in aviation and motor fuel prices, cyclical and
seasonal fluctuations in our operating results, and other risks discussed in the
company's Form 10-K and other filings with the Securities and Exchange
Commission, which discussions are incorporated herein by reference.
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