UPS: Fourth quarter results
UPS today announced a heavy net loss of USD 2.5 billion for the fourth quarter of 2007 due to the one-off costs of exiting a national pension scheme.
UPS reported adjusted diluted earnings per share of USD 1.13 for its fourth quarter, an 8.7 pct increase over last year. Revenue improved 6.1pct driven by a double-digit increase in international export volume, growth and firm pricing in the U.S. package business and market-leading shipment gains at UPS Freight.
During the quarter, the company announced the ratification of a new five-year agreement with the International Brotherhood of Teamsters, eight months before expiration of the existing contract. As a result, USD 6.1 billion was paid to withdraw approximately 45,000 UPS employees from the Central States multi-employer pension plan and expensed to the U.S. Package segment in the quarter. Including the impact of that charge, diluted earnings per share fell to a loss of USD 2.46 for the three-month period.
The fourth quarter produced solid growth in spite of a sluggish U.S. economy. Consolidated average daily package volume reached a record level of 17.7 million pieces, an increase of 359,000 per day. Adjusted net income for the quarter benefited from a lower effective tax rate.
For the full year, the company delivered a record 3.97 billion packages, an average of 15.8 million per day. Consolidated revenue climbed 4.5pct to USD 49.7 billion. Adjusted diluted earnings per share were USD 4.17, an increase of 8pct compared to 2006 and at the midpoint of UPS's earnings guidance for 2007. Before adjustments, operating profit equaled USD 578 million and diluted earnings per share totaled USD 0.42.
Cash Position
UPS ended 2007 in a strong financial position. Even after the withdrawal payment to the Central States Pension Plan, for the year the company:
– Generated cash from operations of USD 1.1 billion.
– Purchased 35.9 million shares for USD 2.6 billion.
– Paid USD 1.7 billion in dividends.
– Invested USD 2.8 billion in capital expenditures.
On Jan. 9, 2008, the company announced it had adopted a new financial policy aimed at enhancing shareowner value. UPS intends to manage its balance sheet to a target ratio within a range of 50-to-60pct funds from operations to total debt. The change "will enable us to make increased investments in the business, pursue growth opportunities and undertake larger share repurchases," said Kurt Kuehn, UPS's chief financial officer.
4Q 2007
U.S. Package 4Q 2007 Adjusted 4Q 2006
Revenue USD 8.31 B USD 8.13 B
Operating profit (loss) (USD 4.89 B) USD 1.21 B USD 1.30 B
Operating margin (58.9pct ) 14.5pct 15.9pct
Average volume per day 15.6 M 15.4 M
Total U.S. daily volume increased 1.4pct, with ground up 1.5pct and Next Day Air® gaining 2.2pct. Pricing remained firm, improving 2.3pct. Adjusted operating profit declined as fuel prices increased rapidly during the quarter.
During the peak holiday shipping season, deliveries exceeded 20 million packages on five consecutive days and 22 million packages on two days.
International Package 4Q 2007 4Q 2006
Revenue USD 2.87 B USD 2.44 B
Operating profit USD 557 M USD 514 M
Operating margin 19.4pct 21.0pct
Average volume per day 2.1 M 2.0 M
Revenue increased 17.3pct on daily export volume growth of 12.2pct . Pricing remained firm as operating profit increased to a record high of USD 557 million.
During the quarter, UPS announced an alliance with AFL in India to enhance international export service there. The company also introduced two new services for international shippers: paperless invoice and international returns. UPS is the first package carrier to offer customers a paperless international shipping option as well as a package return capability to 98 countries and territories. These services make it easier for customers to expand their businesses to new markets around the globe.
Supply Chain and Freight 4Q 2007 4Q 2006
Revenue USD 2.22 B USD 2.06 B
Operating profit USD 82 M (USD 1 M)
Operating margin 3.7pct —
Fourth quarter revenue for the segment improved 7.8pct and operating profit increased USD 83 million over last year's results. In a challenging heavy freight environment, UPS Freight boosted revenue by 12.2pct to USD 525 million with less-than-truckload (LTL) shipments per day increasing 7.8pct, well outpacing the market. In the Forwarding and Logistics unit, revenue increased 6.4pct to USD 1.57 billion.
In January, UPS Freight announced it was guaranteeing its on-time performance at no additional cost to customers using the LTL freight tariff in the continental United States. UPS also launched a simplified air freight services portfolio, including a substantially expanded express freight option with guaranteed door-to-door service. The new air freight portfolio is better aligned to meet market and customer needs, easier to access and use and streamlined for more effective selling by the sales force.
Outlook
"While there is more uncertainty in the U.S. economy today than there was a year ago, we remain focused and confident that we will grow our global business," said Kuehn. "No competitor can match the combination of our service portfolio, technology and integrated global network. Customers are responding well to these offerings.
"We anticipate the first quarter will be the most difficult of the year due to lower profitability from an early Easter and additional interest expense not yet offset by labor contract benefits," the CFO continued. "Therefore, earnings per share for the quarter should be within the range of USD 0.94-to-USD 0.98. For the full year, we expect earnings per share to be between USD 4.30 and USD 4.50."
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.
