UPS Reports Results; Improved Volumes

Volume trends are improving as a result of a stabilization economic environment, said UPS as it reported third-quarter results.

“I’m encouraged by the signs of economic recovery that are becoming apparent, although we still have a long way to go,” said Scott Davis, chairman and CEO of UPS. “Ongoing strategic investment has positioned UPS to capitalize on growth opportunities around the world. We are managing operations well, while controlling costs and maintaining excellent service,” he continued.

UPS reported diluted earnings per share of $0.55 for the third quarter on $11.2 billion in revenue. The prior-year quarter saw $13.11 billion in revenues. Operating profit for the current quarter was $929 million vs. $1.63 billion in 2008. Average volume per day was 14.26 million packages, compared with 14.85 million packages in the year-earlier quarter.

Consolidated volume for the three months ended Sept. 30, 2009, totaled 927 million packages, down 2.4% from the same period in 2008. Average daily volume and revenue per piece declined 3.9% and 11.3%, respectively. Operating profit decreased to $929 million as the benefits of substantial cost reductions and productivity gains were more than offset by the economic impact of lower volumes and changes in product mix.

Through effective management of capital expenditures and working capital, UPS generated $3.4 billion in free cash flow for the first nine months of 2009, the company said. It also paid $1.3 billion in dividends, invested $1.2 billion in capital expenditures, repurchased 7.8 million shares at a cost of $396 million. As a result, it ended the quarter with $2.8 billion in cash and short-term investments.

US domestic package operations in the third quarter produced $6.87 billino in revenue vs. $7.84 billion for the same period in 2008. Operating profit for domestic package group was $514 million, down from $1.12 billion the prior year. Operating margins were also down by about half to 7.5% . Average volume per day was 12.3 million packages vs. 12.9 million for the 2008 period.

Total package volume was 799 million pieces, down 3.6%, reflecting the weakness in the US economy, said UPS. Average daily volume declined 5.1%. While Next Day Air volume increased 2.4%, ground decreased 6.2%. Revenue per piece declined 9.1% as a result of significantly lower fuel surcharges and lighter-weight packages.

UPS international package services reported $2.42 billion in revenue, down from $2.95 billion in the 2008 period. Operating profit was $313 million vs. $386 million. UPS reported an operating margin of 12.9% on international package vs. 13.1% in the prior year. Average volume per day increased to 1.97 million vs. 1.90 million in 2008.

International average daily volume rose 4%. Domestic volume increased 9.1% due to expansion of domestic services and an acquisition in Turkey. Export volume per day declined 3.2%, outperforming the market. Revenue per piece dropped 21%, reflecting the impacts of reduced fuel surcharges, currency and product mix, said UPS.

Supply chain and freight, which includes the UPS Freight less-than-truckload (LTL) operation, reported third-quarter revenues of $1.86 billion, down from $2.32 billion. Operating profit was $102 million vs. $129 million, and operating margins were slightly lower in the current quarter, 5.5% compared with 5.6% in 2008.

UPS noted that “although revenue and operating profit declined in the quarter, operating margin was flat with last year due to excellent revenue management and cost control.” Both the Logistics and Forwarding business units experienced moderation in the rate of revenue decline, said UPS. The Logistics unit again achieved significant growth from its services to the healthcare industry, though UPS did not provide specific numbrs.

UPS Freight performance was negatively impacted by increasingly competitive conditions in the freight environment. Nonetheless, the business outperformed the market and gained share while maintaining yields.

“The business environment in the third quarter began similarly to that of the preceding quarter. However, we did see profitability improvement due to effective cost management and firming volume later in the quarter,” said Kurt Kuehn, UPS’s chief financial officer.

“We’re confident in our ability to thrive by partnering with our customers and providing them the services they need to grow,” Kuehn continued. “UPS is poised for the recovery when it comes. We’ve instituted cost initiatives that will approach $1.4 billion this year, making UPS more efficient than ever. In addition, we will reduce our 2009 capital expenditures to $1.7 billion, down $500 million from our initial budget.”

UPS commented that, although there are signs of economic recovery, forecasters predict US consumers will spend conservatively for the holidays this year. “Our customers have widely differing views on their outlook for the holiday season. Nevertheless, UPS is primed to handle the seasonal package surge as it materializes,” Kuehn added.

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