UPS 3Q Earnings Climb 69 Percent on Revenue Growth of 9 Percent
Strong Growth Across all Segments; UPS Raises Annual Guidance
Atlanta, October 21, 2010 - UPS (NYSE:UPS) today announced adjusted diluted earnings per share of $0.93 for the third quarter of 2010, a 69% improvement over the prior-year period. Global revenue grew 9.3%, generating $1.5 billion in adjusted operating profit, a 62% increase.
On a reported basis, diluted earnings per share were $0.99, an 80% increase over the $0.55 in the same period last year. During the quarter, UPS recorded an after-tax benefit of $61 million on the sale of real estate.
"UPS once again exceeded expectations due to superior execution across all business units and our ability to provide solutions that create value for our customers," said Scott Davis, UPS chairman and CEO. "We continue to deliver significant earnings growth and margin expansion in the current economic environment. This is a true testament to what can be accomplished when you have excellent people, superior service and an unmatched global portfolio."
Based on the company's performance, UPS has increased its guidance for 2010 adjusted diluted earnings to a range of $3.48 to $3.54 per share, a 51%-to-53% increase over last year.
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Diluted earnings per share
For the three months ended Sept. 30, 2010, revenue increased 9.3% on average daily volume growth of 5%. UPS delivered 958 million packages in the quarter.
Adjusted operating margin expanded 410 basis points to 12.4%. On a reported basis, operating margin was 13.3%.
During the quarter, UPS unveiled a new communications platform with the theme "We Love Logistics." This campaign is UPS's first coordinated global advertising effort and is designed to demonstrate the power of logistics to businesses around the world.
For the nine months ending Sept. 30, UPS generated $3.5 billion in free cash flow. The company also:
Paid dividends totaling $1.36 billion.
Invested $1 billion in capital expenditures.
Repurchased 9.3 million shares at a cost of $589 million.
U.S. Domestic Package
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Adjusted operating profit increased 77% to $911 million on revenue growth of 6%. The margin expansion of 500 basis points was driven by volume growth, improved yields and the benefits of more streamlined operations. Reported operating profit was $1.02 billion, a 98% increase.
Average daily package volume expanded 3.6% during the quarter due to growth in Ground and Next Day Air. Revenue per piece improved 4%, primarily through increases in base pricing and higher fuel surcharges.
During the quarter, UPS introduced Returns Flexible Access, expanding the options for consumers to return goods to retailers. The combination of UPS and postal access channels creates the most extensive returns network available to consumers today.
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The operating profit for the segment increased 34% to $419 million on an 11% increase in revenue. Operating margin improved 280 basis points to 15.7%. Export average daily volume increased 13%, outpacing the market, due to growth in all regions with Asia leading the way, up more than 30%.
Non-U.S. domestic volume increased 14% with strength across Europe, Canada and Mexico.
As part of an on-going strategy to grow its business in emerging markets, UPS entered into an expanded alliance with its local domestic courier in Indonesia. This agreement extends the footprint for pick-up and delivery of international express packages throughout the country.
Supply Chain and Freight
Revenue grew 19% with the Forwarding business unit leading the way. Operating profit jumped 74% to $177 million, powered by Forwarding and Logistics.
The operating margin for the segment increased 250 basis points to 8.0%. This margin expansion was primarily driven by improved revenue management, increased tonnage and improved operational efficiencies in Forwarding and Logistics.
UPS Freight revenue grew 14% due to improved yield and increases in gross weight hauled.
During the quarter, UPS launched Preferred LCL Ocean Freight, a new service that provides up to 20% faster door-to-door delivery than other less-than-container-load (LCL) services on the market.
Outlook "UPS generated superior performance across all segments," said Kurt Kuehn, UPS's chief financial officer. "This is a direct result of the successful execution of our long-range strategy.
"I am confident in UPS's ability to generate strong cash flow and continued earnings growth while investing in growth opportunities around the world," Kuehn added. "Based on the projections of retailers and economists, we expect modest growth during the holiday peak season. We are raising our full-year 2010 guidance with adjusted earnings per share expected to grow more than 50% over last year. "
UPS Chairman and CEO Scott Davis and CFO Kurt Kuehn will discuss third 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 www.investors.ups.com and click on "Earnings Webcast."
UPS routinely posts investor announcements on its web site - www.investors.ups.com - 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. The equivalent measures determined in accordance with GAAP are also referred to as "reported" or "unadjusted". 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.
In the first quarter of 2010, we recorded a $98 million pre-tax restructuring charge in our U.S. Domestic Package operations related to the reorganization of our domestic management structure. We also incurred a $38 million pre-tax loss on the sale of a specialized transportation business in Germany in our Supply Chain & Freight segment. Additionally, we recorded a $76 million charge to income tax expense, resulting from a change in the filing status of a German subsidiary. In the third quarter of 2010, we recorded a $109 million pre-tax gain on the sale of real estate. In the first quarter of 2009, we recorded a $181 million pre-tax impairment charge related to our cDonnell-Douglas DC-8-71 and DC-8-73 aircraft fleets. In the second quarter of 2009, we recorded a $77 million pre-tax charge for the remeasurement of certain obligations denominated in foreign currencies, in which hedge accounting was not able to be applied. We presented third quarter and year-to-date 2010 and 2009 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 these charges and gain were unique, and we do not believe they are reflective of the types of items that will affect future results.