Results Driven by Supply Chain & Freight, International
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Press Release
ATLANTA, Oct. 23, 2007 - UPS (NYSE:UPS) today reported a 9.4% increase in adjusted diluted earnings per share for its third quarter on a 4.7% gain in revenue. The company saw significant improvement in the supply chain and freight segment and good gains in its international business. Its U.S. small package operation posted modest improvement in spite of a sluggish economy.
For the three months ended Sept. 30, 2007, adjusted diluted earnings per share climbed to $1.05 as consolidated package volume rose to an average daily total of 15.25 million.
The adjusted financial results exclude a $46 million restructuring charge and related expenses for a supply chain business in France. Including the impact of this charge, diluted earnings per share increased 6.3% to $1.02 compared to $0.96 per diluted share in the same period in 2006.
"This was a very good quarter for the company from many perspectives," said Mike Eskew, UPS's chairman and CEO. "First, UPS turned in a solid performance in the face of a slower U.S. economy. We reached tentative agreement with the Teamsters on a new contract almost a year early. And we unveiled industry-leading service and technology innovations."
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3Q 2007 |
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| Consolidated Results |
3Q 2007 |
Adjusted |
3Q 2006 |
| Revenue |
$12.21 B |
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$11.66 B |
| Operating profit |
$1.71 B |
$1.75 B |
$1.58 B |
| Operating margin |
14.0% |
14.4% |
13.5% |
| Average volume per day |
15.25 M |
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15.07 M |
| Diluted earnings per share |
$1.02 |
$1.05 |
$0.96 |
Adjusted operating profit improved 11.3% with gains in all three business segments. Consolidated revenue per piece increased 3.1%.
Cash Position
For the first nine months of 2007, UPS:
- Generated more than $5.2 billion in cash from operations.
- Invested $2 billion in capital expenditures.
- Spent $2 billion to repurchase 27.9 million shares.
- Paid $1.7 billion in dividends.
- Produced more than $3.1 billion in free cash flow.
| U.S. Domestic Package |
3Q 2007 |
3Q 2006 |
| Revenue |
$7.55 B |
$7.40 B |
| Operating profit |
$1.23 B |
$1.21 B |
| Operating margin |
16.3% |
16.3% |
| Average volume per day |
13.4 M |
13.3 M |
Total domestic volume increased nearly 1%. Revenue per piece was firm, with ground package revenue per piece rising 2.4%.
During the quarter, UPS and the Teamsters reached a handshake agreement on a new five-year contract covering about 240,000 U.S. employees. The tentative deal, which is going through the ratification process, will extend UPS's contract with the Teamsters through July 31, 2013. The company views the agreement as good for UPS employees, customers and shareowners alike.
| International Package |
3Q 2007 |
3Q 2006 |
| Revenue |
$2.53 B |
$2.25 B |
| Operating profit |
$428 M |
$387 M |
| Operating margin |
16.9% |
17.2% |
| Average volume per day |
1.84 M |
1.77 M |
Export volume increased 9.3%. Double-digit gains in both Europe and Asia were offset somewhat by mid single-digit growth in U.S. export volume. Operating profit improved 10.6% to $428 million.
During the quarter, UPS won authority to operate six daily flights between the United States and Nagoya, Japan. These flights will connect with the company's new hub in Shanghai, on which construction began in August. As the quarter ended, UPS unveiled two new "firsts" in the package industry: paperless invoice international shipping and package return capability to 98 countries and territories. The new services will be known as UPS Paperlesssm Invoice and international UPS Returns®.
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3Q 2007 |
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| Supply Chain and Freight |
3Q 2007 |
Adjusted |
3Q 2006 |
| Revenue |
$2.13 B |
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$2.01 B |
| Operating profit |
$52 M |
$98 M |
($19) M |
| Operating margin |
2.4% |
4.6% |
(.9)% |
The supply chain and freight segment continued the momentum established earlier in the year. Adjusted operating profit improved $117 million. Forwarding and logistics revenue rose 4.7% to $1.49 billion. Less-than-truckload revenue increased 12.1% to $521 million with 13.3% shipment growth.
Outlook
"Once again, UPS's balanced network around the globe produced solid results even in the face of a lackluster U.S. economy," said Scott Davis, UPS's vice chairman and CFO. "Fourth quarter results will be driven by good performance in our international operations and further gains in supply chain and freight. We expect slowing retail sales will restrain U.S. domestic volume growth. For the full year, we expect adjusted diluted earnings per share to be between $4.13 and $4.19, well within the range we provided at the beginning of 2007."
UPS, which celebrated its 100th anniversary in 2007, 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.
 View the full financial tables
EDITOR'S NOTE: UPS Chairman and CEO Mike Eskew and Vice Chairman and CFO Scott Davis will discuss third quarter results with investors and analysts during a conference call today at 8:30 a.m. EDT. That conference call is open to listeners through a live Webcast. To access the call, go to www.shareholder.com/UPS and click on "Earnings Webcast."
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 2007, we recorded a $221 million pre-tax impairment charge related to aircraft and a $68 million pre-tax charge related to cash payouts and the acceleration of stock compensation and certain retiree healthcare benefits for employees who accepted a voluntary separation opportunity. Additionally, we recorded a $46 million pre-tax charge in the third quarter of 2007 related to the restructuring and disposal of certain operations in France within the Supply Chain & Freight segment. We presented third quarter and year-to-date 2007 operating profit, operating margin, pre-tax income, net income and earnings per share excluding the impact of these items 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 and the charge related to the voluntary separation opportunity were unique, and we do not believe they are reflective of the types of charges that will affect future anticipated results. Additionally, the restructuring charge reflected our exit of certain non-core lines of business in our Supply Chain & Freight operations, and we do not believe this charge is indicative of future operating results of our core forwarding, logistics and freight operations.
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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