Asia Pacific-Europe Trade Lane Volume Grows Steadily; Global Supply
Chain & Freight Exceeds Expectations
Taiwan, July 30, 2008 - UPS (NYSE:UPS) today reported a 6.7%
revenue increase in the second quarter but an 18.3% decline in diluted earnings
per share to $0.85 compared to $1.04 the prior year. Increasing fuel costs and a
stagnant U.S. economy caused the earnings decline in both the U.S. Domestic and
International Package segments. In contrast, the Supply Chain and Freight
segment posted a substantial improvement in profitability.
Gary Wu, General Manager of UPS Taiwan, said, "The supply chain and freight
segment has become a growing source of revenue for UPS Taiwan. An example is UPS
ExpressSM Freight, which was launched at the beginning of the year. It is an
economical option for customers who require a door-to-door delivery service with
a time-definite guarantee. In small package segment, we have also extended our
export cut-off time to 17:00pm for eastern U.S same-day flight in the greater
Taipei area, giving our clients more options."
"In the Asia Pacific region, our export volume to Europe for the quarter grew
more than 20% compared to the same period last year, showing the prosperous
trading development between the two areas." said Derek Woodward, President, UPS
Asia Pacific. Woodward added, "In addition, we are actively working to enhance
our customer focus in Asia. Highlights of the quarter included assuming full
control of our joint venture operation in Korea, announcing plans to move our
intra-Asia air hub to Shenzhen from the Philippines to reduce transit times, and
the introduction of five weekly flights between Nagoya, Japan and Shanghai to
meet growing intra-Asia customer demand,"
Scott Davis, UPS chairman and CEO said, "Although operating conditions in the
second quarter were challenging, UPS firmly believes the long-term growth
fundamentals for our company and for our industry are very favorable. We are
helping our customers manage through this difficult period while doing
everything we can inside UPS to adapt to current conditions."
Consolidated
Results
2Q 2008 2Q
2007
Revenue
$13.00 B $12.19 B
Operating
profit
$1.45 B $1.77
B
Operating
margin
11.2 % 14.5 %
Average volume
per
day
15.0 M 15.0 M
Diluted
earnings per share
$0.85
$1.04
For the three months ended June 30, 2008, UPS delivered consolidated volume
of 959 million packages, essentially unchanged from the second quarter last
year. Revenue rose to $13.0 billion and revenue per piece increased 5.9%.
Results were negatively affected by a 67% increase in fuel expense, a reduction
in premium product volumes and weakness in U.S. imports.
Cash Position
For the first six months of 2008, free cash
flow remained strong at $3.4 billion, including approximately $1 billion in U.S.
federal cash tax benefits related to the company's withdrawal from the Central
States Pension Plan. The company also:
- Purchased 34.8 million shares at a cost of $2.4 billion.
- Paid dividends totaling $1.3 billion.
- Invested $1.4 billion in capital expenditures.
- Ended the quarter with $1.7 billion in cash and short-term
investments.
U.S. Domestic
Package 2Q
2008 2Q
2007
Revenue
$7.71 B $7.58 B
Operating
profit
$0.90 B $1.19 B
Operating
margin
11.7 % 15.7 %
Average volume per
day 13.1 M
13.2 M
The slow U.S. economy caused average daily volume in the United States to
decline 1.3% in the quarter and also contributed to a more pronounced reduction
in premium products than in the previous quarter. Volumes per day declined 6.1%
for Next Day Air®, 2.3% for deferred air and 0.7% for ground.
Consolidated revenue per piece rose 3.1%, increasing for all services.
These factors, along with the rapid increase in fuel cost and the impact of
the two-month lag in the application of the fuel surcharge, were responsible for
the declines in second quarter operating results.
During the quarter, UPS and DHL announced they were working on a 10-year
agreement through which UPS would provide air lift for DHL's express, deferred
and international volume within the U.S. and between the U.S., Canada and
Mexico.
International
Package 2Q
2008 2Q
2007
Revenue
$2.95 B $2.50 B
Operating
profit
$407 M $475 M
Operating
margin
13.8 % 19.0 %
Average volume per
day 1.93 M
1.80 M
International results were negatively impacted by higher fuel costs,
declining U.S. import volume and slower growth in premium services in the major
regions of the world.
Export volume increased an industry-leading 10.2%, aided by the calendar
effect of an early Easter, which boosted growth rates by approximately 2%.
However, volume growth slowed significantly through the quarter.
During the period, UPS continued its global investments. In the United
Kingdom, the company completed network integration of Tamworth, its largest
ground hub outside the U.S. In Asia, UPS announced construction of an intra-Asia
hub in Shenzhen, China; initiated five weekly flights to Nagoya, Japan, and
concluded the buyout of its joint venture partner in Korea.
Supply Chain and Freight 2Q
2008 2Q
2007
Revenue
$2.34 B $2.11 B
Operating
profit
$148 M $98 M
Operating
margin
6.3 % 4.6 %
Segment revenue increased almost 11% with operating profit climbing more than
50%. Results were driven by the continued strong performance of the Forwarding
and Logistics businesses. During the quarter, UPS announced an expansion of its
logistics campus in Burlington, Ontario, to address healthcare and high-tech
customers' needs.
UPS Freight LTL revenue grew 7.2%, but shipments declined 2.3% as a
consequence of the stagnant U.S. economy. UPS Freight expanded its reliability
guarantee on shipments to and from Canada and introduced time-in-transit
enhancements to 1,000 lanes in the United States.
Outlook
"Slow U.S. economic activity and fuel price
increases hit us and our customers during the quarter," said Kurt Kuehn, UPS's
chief financial officer. "Even though economists do not predict a recovery until
2009, we anticipate that the second half of 2008 will generate modestly better
results than the first half, assuming business conditions do not worsen.
Therefore, we are providing earnings-per-share guidance for 2008 within a range
of $3.50 to $3.70. This translates to a range of $1.78-to-$1.98 for the second
half compared to $1.72 for the first half."
Kuehn pointed out that comparisons to last year's results would be more
difficult in the third quarter and moderate in the fourth.
"We are taking the necessary steps to control costs, add value for customers
and grow our business while adjusting to the realities of today's challenging
environment," Kuehn added.
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 www.ups.com.
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