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Pensions restructuring hits UPS profits in third quarter

Tuesday, October 23rd, 2012

UPS has seen its profits for the third quarter of the year slashed in half, as it was handed a $559m charge in restructuring employee pensions in New England.

The Atlanta-based integrator hailed the improved profitability of its international business as it revealed its latest financial results today.

But the achievement came as revenues dropped slightly overall, and the profitability of its US domestic package business was virtually wiped out.

Scott Davis, the UPS chairman and CEO said today that the quarter saw slowing global trade and changing market dynamics.

UPS revenue for the quarter overall fell by $100m to $13.07bn, with profit falling by $900m to $770m.

This came as average daily volumes actually increased by 2.9% compared to the same quarter last year, to 15.5m a day.

UPS announced back in August that it was restructuring pensions for more than 10,000 employees in New England, expecting the move to add a $900m cost to its results. Adjusting for the one-off cost, UPS said its overall profit for the third quarter would have been about $1.66bn, only a fraction down on the $1.67bn achieved last year.

Looking ahead to the end of the year, UPS said there was some uncertainty surrounding how the festive peak will shape up this year. The US faces a “fiscal cliff” next year, with a series of tax increases and spending cuts due to come into force in January, and UPS executives warned that this issue will be “front and centre” for US consumers in the run-up to Christmas thanks to next month’s Presidential elections.

But executives said they were confident in the UPS network adapting to conditions.

Kurt Kuehn, the UPS chief financial officer, said: “As a result, we enhanced our guidance by narrowing the range, maintaining our previous midpoint. We anticipate 2012 adjusted diluted earnings per share to be within a range of $4.55 to $4.65, an increase of 5-7% over 2011 adjusted results.”

Divisions

Among UPS business divisions, its domestic US package business saw revenues increase by just over a percentage point to $7.86bn, but profit collapsed from just over a billion dollars to just $129m.

Were it not for the pension restructuring, the quarter would have seen a slight decline in profitability of just $21m, UPS said, affected by one less operating day during the quarter and the timing of fuel surcharge changes.

Ecommerce continued to drive changes in the company’s US domestic division, lowering weight per package, but increasing volumes in Ground and Deferred services by 3% and 9.3% respectively, as business-to-business volumes declined slightly.

Executives said ecommerce merchants were making use of premium UPS services as well as standard ground services, with Next Day Air volume growing 5.7% over last year’s third quarter, driven by the UPS Next Day Air Saver product.

On the international side of the business, as it faces a difficult reception in Europe for its proposed takeover of rivals TNT Express, UPS said its international revenues fell by nearly 4% in the third quarter to $2.94bn.

But international profits increased 7.6% to $449 for the quarter, a record third quarter for UPS International.

UPS said revenues dropped because of lower fuel surcharges and currency changes, as volumes overall remained stable at 2.3m items per day. Daily Export volume grew 1.2%, with growth slowing in Europe but returning to Asia for the first time in several months. But, executives said today there has been demand shifting from premium to economy products.

The UPS supply chain and freight business saw a 3% fall in revenues, to $2.27bn for the quarter, with profit slipping 7% to $188m, with declines in the Forwarding business partially countered by an improved UPS Freight performance.

Source: Post&Parcel/UPS

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