UPS 2nd quarter earnings climb over 18 percent

UPS has reported an 18.2percent gain in net income for the second quarter on a 7.8percent increase in revenue with strong growth in its global small package business. In addition, the company raised its future guidance and expects full year 2004 earnings growth to approach 20percent.

Previously, the company’s guidance called for 2004 earnings at the upper end of a 12-to-18percent range.

In the second quarter, total average daily package volume worldwide rose to 13.6 million, a net gain of 550,000 packages per day compared to the prior-year period. Average daily ground volume within the United States climbed almost 5percent. International export volume increased 13percent with double-digit growth in all regions of the world, led by China with a gain of almost 70percent.

“Our global small package business is vibrant and growing,” said Scott Davis, UPS’s chief financial officer. “This strong growth is being fueled by our integrated customer technologies, expanded supply chain capabilities and superior service and reliability.”

For the three months ended June 30, consolidated revenue totaled USD8.87 billion, up 7.8percent from the USD8.23 billion reported during the prior-year period. Consolidated operating profit jumped 21.3percent to USD1.31 billion. Net income totaled USD818 million. Earnings per diluted share were USD0.72, up 18percent from the USD0.61 reported for the second quarter of 2003.

Operating profit and net income for the period a year ago were impacted by a pre-tax loss from the sale of the company’s Mail Technologies unit, which was more than offset by a related tax benefit. Adjusting for that prior year reduction in operating profit of USD24 million and net income benefit of USD14 million, operating profit for the current period rose 18.7percent and net income rose 20.6percent. Earnings per diluted share rose 20percent from the adjusted USD0.60 per share reported last year.

For the six months ended June 30, consolidated revenues totaled USD17.79 billion, an increase of 9.5percent compared to the prior-year period. Operating profit totaled USD2.53 billion, a gain of 24.8percent compared to the period in 2003. Net income increased 21percent to USD1.58 billion over the earlier period. In addition to the impact of the sale of Mail Technologies, the company’s results for the first six months of 2003 were affected by a first quarter write-down in marketable securities, and a reduction to income tax expense resulting from the resolution of various tax matters with the IRS. Adjusting for the impact of these items, operating profit for the first six months of 2004 rose 23.3percent and net income improved by 24.1percent.

Second quarter highlights by company segments included:

International package revenues climbed almost 18percent to USD1.61 billion as average daily package volume rose 8.5percent. Asia export volume increased 17percent and U.S. export volume grew an industry-leading 12percent. Operating profit soared 72percent to USD272 million. This unit now contributes more than 20percent of UPS’s total operating profit.

U.S. package revenue rose 5.8percent to USD6.48 billion. Operating profit climbed 7.2percent to USD892 million and operating margin improved 20 basis points to 13.8percent, the highest in two years. Average daily ground volume in the U.S. showed a strong 4.9percent gain, contributing to a total domestic volume increase of 3.8percent. Next Day Air® package volume saw robust growth that actually exceeded the growth rate of ground volume, offsetting the decline in air letter volume stemming from the unusually high mortgage refinancing activity last year. Average revenue per piece rose for all products, with the overall U.S. average revenue per piece increasing 2percent.

Revenue for the non-package segment grew 6.4percent to USD778 million, while operating profit climbed 62percent. Excluding the loss from the 2003 sale of the Mail Technologies business, operating profit increased 28.1percent. Revenue for UPS Supply Chain Solutions, the largest unit in the non-package segment, increased 7.2percent to USD568 million.
Several developments during the second quarter positioned the company well for future growth. The United States and China agreed to significantly expand aviation rights; unique customer services were developed or enhanced with eBay, Yahoo! Small Business and Toshiba, and UPS Supply Chain Solutions launched a service to help businesses recycle or dispose of unwanted electronics.

“The breadth of solutions we bring to our customers is a unique competitive advantage,” Davis said. “It is allowing us to deepen our relationships with customers, which is producing bottom-line benefits to all three segments of our business.”

Davis said the company projects third quarter earnings to increase over last year to the range of USD0.69 to USD0.72 per diluted share and expects full year 2004 earnings growth approaching 20percent, compared with last year’s adjusted earnings per share of USD2.44.