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UPS 2Q Earnings Per Share Jump 25 Percent on Revenue Growth of 8 Percent
Press Release

U.S. Domestic Profit Improves 31%; Supply Chain and Freight Profit Sets New High

Atlanta, July 26, 2011 - UPS (NYSE: UPS) today announced adjusted diluted earnings per share of $1.05 for the second quarter of 2011, a 25% improvement over the $0.84 for the prior-year period. Total revenue increased 8.1% to $13.2 billion.

On an adjusted basis, U.S. Domestic operating profit increased 31%, while Supply Chain and Freight generated record operating profit of $187 million. 

On a reported basis, diluted earnings per share for the quarter were $1.07, a 27% increase over the same quarter last year. During the period, UPS recorded two real estate transactions that resulted in a net after-tax gain of $20 million.

"UPS's results reflect the continued execution of our strategy and the ability to grow earnings in an uneven economic environment," said Scott Davis, UPS chairman and CEO. "Customers are recognizing the value of the integrated solutions that leverage UPS capabilities around the globe and across the entire supply chain."

   
Adjusted
 
Consolidated Results
2Q 2011
2Q 2011
2Q 2010
Revenue
$13.19 B
 
$12.20 B
Operating profit
$1.70 B
$1.67 B
$1.40 B
Operating margin
12.9 %
12.6 %
11.5 %
Average volume per day
14.9 M
 
14.8 M
Diluted earnings per share
$1.07
$1.05
$0.84

In the second quarter, UPS delivered 957 million packages generating $13.2 billion in revenue. Adjusted operating margin expanded by 110 basis points to 12.6%, while reported operating margin improved 140 basis points to 12.9%.

Cash Position
For the six months ending June 30, UPS generated $2.3 billion in free cash flow even after making accelerated pension contributions of $1.2 billion. Capital expenditures for the period were $951 million, as the company has added four B-767 and two B-747-400 aircraft to its fleet.

In addition, year-to-date, UPS paid dividends of more than $1 billion, up 10.6% per share. The company also repurchased 14.4 million shares for approximately $1.1 billion.

 
 
Adjusted
 
U.S. Domestic Package
2Q 2011
2Q 2011
2Q 2010
Revenue
$7.74 B
 
$7.27 B
Operating profit
$966 M
$981 M
$748 M
Operating margin
12.5 %
12.7 %
10.3 %
Average volume per day
12.63 M
 
12.62 M

Operating profit improved 31% on an adjusted basis with revenue growth of 6.4%. Volume growth was flat as a result of the slow U.S. economy. Adjusted operating margin expanded 240 basis points to 12.7% due to higher yields and network efficiencies. 

On a reported basis, including the negative impact of a $15 million real estate transaction, operating profit increased 29% and operating margin expanded by 220 basis points to 12.5%.

Last month, UPS received the No. 1 ranking in the express delivery industry as reported by the University of Michigan's American Customer Satisfaction Index. This survey measures key attributes such as consumer expectations, quality and value of services as well as consumers' intention to re-purchase.

International Package
2Q 2011
2Q 2010
Revenue
$3.14 B
$2.77 B
Operating profit
$497 M
$521 M
Operating margin
15.8 %
18.8 %
Average volume per day
2.32 M
2.18 M

Revenue for the segment improved 13.3% driven by an export volume increase of 8.1%, with Europe and China continuing their strong growth trends. Revenue per piece climbed 6.3% with currency, fuel surcharges, rate increases and product mix all contributing.

Currency translation and hedging programs negatively impacted operating profit by more than $50 million.

Continuing the expansion of its Asian air network, UPS launched a new flight this week to serve western China. The flight originates in Cologne, Germany, and makes a stop in Warsaw before transiting to Chengdu, China, on the way to Shanghai. With the addition of the Chengdu flight, UPS now connects Europe and Asia with 24 flights per week, providing more next day options, guaranteed, than any logistics carrier. 

 
 
Adjusted
 
Supply Chain and Freight
2Q 2011
2Q 2011
2Q 2010
Revenue
$2.32 B
 
$2.16 B
Operating profit
$235 M
$187 M
$133 M
Operating margin
10.2 %
8.1 %
6.1 %

Operating profit climbed 41% on an adjusted basis to $187 million with revenue growth of 7%. The adjusted operating margin for the segment increased 200 basis points to 8.1%. This was driven by significant improvements in the Forwarding business as a result of revenue management initiatives and favorable buy rates. 

On a reported basis, including the positive impact of a $48 million real estate transaction, operating profit increased 77% and operating margin grew 410 basis points to 10.2%. 

UPS Freight revenue increased 19% over the prior-year period, driving improved profitability. The business saw strong increases in LTL revenue per hundredweight and gross weight hauled, up 11.2% and 6.2%, respectively.

In June, UPS and Merck announced a significant expansion of their North American relationship with a global distribution and logistics agreement. This agreement includes aspects of Merck's global supply chain around the world. UPS will provide various services including distribution, warehousing and multi-modal transportation to Merck across Europe, Asia and Latin America.

Outlook
"Despite softening economic conditions, UPS delivered its highest ever second quarter earnings per share," said Kurt Kuehn, UPS's chief financial officer. "These results were driven by the quality of revenue in U.S. Domestic, superior export volume growth in International and record Supply Chain & Freight results.

"We remain confident in our ability to execute and surpass prior peak EPS this year," Kuehn continued. "Although economic conditions will impact our performance, we reiterate guidance for 2011 adjusted diluted earnings per share to a range of $4.15-to-$4.40."

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