UPS is gaining momentum in 2nd quarter volume growth
Citing good momentum through the first five weeks of the quarter, UPS executives today said U.S. domestic volume growth was "well ahead" of expectations for the second quarter and international export volume continued to climb at its expected double-digit rate.
The gain in domestic volume follows a first quarter in which UPS reported significant international export package growth and a strong 16.2% gain in net income. UPS today said it continues to expect a strong 2005 with full-year net income growth of 16-to-20% over the adjusted US$2.90 reported for 2004. Going forward, the integration of Menlo Worldwide Forwarding is progressing so well that UPS expects US$50-to-$100 million in net synergies in 2006 and at least US$200 million in 2007.
"We have an aggressive plan in place that is helping UPS to move ahead around the world and we are seeing results," declared UPS Chairman and CEO Mike Eskew. "We will grow our top line and the bottom line while maintaining industry-leading margins. We will grow in all markets, across all continents. That means small package in the U.S. as well as internationally and the expansion of freight services around the world."
Eskew, CFO Scott Davis and several other top executives discussed the company's future Wednesday during a meeting with investors and equity analysts. Davis said the company's effort to stimulate volume growth in the U.S. domestic business definitely was gaining traction, particularly among mid-size companies.
"Momentum in the U.S. domestic business is visible in the early weeks of this quarter," Davis said. "Through the first week of May, we are well ahead of our 2% guidance for total volume growth."
Besides the positive short-term outlook, Eskew and Davis focused on UPS's well-known emphasis on long-term growth.
"Simply put, we manage our business to deliver economic profit growth over the long term," the CFO observed. "Top-line growth, margin performance and how we invest capital are all important considerations in our decision-making. As a company with strong employee stock ownership, we are a business run by investors for investors and have a culture that is deeply rooted in adding value to our business."
Eskew and Davis were joined by COO John Beystehner; UPS International President David Abney; Jim Winestock, senior vice president, U.S. operations; Kurt Kuehn, senior vice president for worldwide sales and marketing, and Bob Stoffel, senior vice president, UPS Supply Chain Group.
Among other highlights of the meeting, they disclosed:
Package Flow Technology, a suite of technologies that is allowing UPS to improve route planning, vehicle loading and package delivery, is on track and its financial benefits now exceed the cost of deployment. Even more importantly, it will open the door for new customized products in the future.
Air freight leads the way as the most immediate growth area for UPS Supply Chain Solutions, particularly with the acquisition of Menlo Worldwide Forwarding last December. UPS expects net synergies worth between US$50-to-$100 million in 2006 through the integration of Menlo and at least US$200 million in 2007. UPS Supply Chain Solutions now is the second largest air freight carrier in the U.S. and second largest international air freight forwarder.
The company is putting a strong emphasis on its middle market and is showing increasing momentum in that segment. Senior manager jobs around the U.S. have been realigned to allow more focus on supporting the needs of customers. These efforts have resulted in volume growth running well above second-quarter guidance through the first week of May.
The UPS international network, already the most comprehensive, integrated network in the industry, is being expanded and improved. The European hub in Cologne, Germany, is increasing its sorting capacity by more than 80%, and a flight lane from Cologne to Louisville, Ky., will greatly increase next-day capability for Europe-to-U.S. packages. UPS is enjoying double-digit growth in Asia; a new hub in Shanghai will be opened in 2007 to support this strong growth.
The company also is deploying technology in many other broad initiatives, including deployment of shipping systems in more than 20 countries that make it easier to manage the flow of goods across national borders.
Davis, in discussing the company's financials, said capital spending in 2006 and 2007 would remain at or below 6% of revenue, at the low end of UPS's historical range. He said UPS would continue to consider acquisitions if they were in "attractive markets and offer compelling synergies that leverage our strengths."
The CFO also noted UPS has nearly doubled its dividend since 2000, increasing the quarterly payout by 74% in just the past three years.
Eskew outlined the company's growth objectives, stating: "We are committed to continued growth across the globe. We will grow our small package position in the U.S. at market rates and we will grow faster than the market across Europe and Asia. Also, we will aggressively grow our freight services business in key industries within the U.S., Europe and Asia. And finally, we will continue to maintain a long-term focus on creating value for our customers and for our shareowners."
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.
