International and Supply Chain Businesses Show Strength Despite Economic Weakness
ATLANTA, Oct. 23, 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.
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 |
|
| 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 |
|
| 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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full financial tables
EDITOR'S NOTE: UPS Chairman and CEO Scott Davis and CFO Kurt
Kuehn 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."
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 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. 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. 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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