UPS releases 3rd quarter results

UPS reported diluted earnings per share of USD 0.96 for its third quarter on a 7.4pct increase in revenue. This represents an 8.6pct decline from the USD 1.05 per share reported on an adjusted basis for the comparable 2007 quarter. The company's international and supply chain businesses demonstrated strength despite a challenging global economic environment.
Unadjusted diluted earnings per share of USD 1.02 for the 2007 third quarter included a restructuring charge and related expenses for a supply chain business in France. Diluted earnings per share for this year's third quarter declined 5.9pct compared to this amount.
"UPS managed the business well in this very tough economic climate," said Scott Davis, UPS's chairman and CEO. "We continue to see growth in our international and supply chain businesses while maintaining our focus on cost control and revenue management throughout our organization. UPS also is investing to ensure growth in the future so that the company will be even stronger when the global economy rebounds."
For the three months ended Sept. 30, 2008, consolidated revenue per piece increased 8.1pct while package volume per day declined 2.6pct. Operating profit declined 7pct to USD 1.63 billion compared to adjusted operating profit last year. The decline was 4.4pct on an unadjusted basis. Operating results were positively impacted by productivity gains and benefits from the two-month lag in fuel surcharges. These impacts were more than offset by economic deceleration and the high cost of fuel, which drove product mix changes.
Average daily U.S. domestic volume declined 3.4pct, reflecting on-going weakness in the U.S. economy. Air products posted declines of 6.4pct and ground volume decreased 2.8pct. Domestic revenue per piece increased 5.8pct, led by UPS Next Day Air® rising 11pct as a result of higher fuel surcharges and continued focus on revenue management. Third quarter results were positively impacted by about USD 90 million due to the two-month lag in fuel surcharges.
During the quarter, UPS expanded its customer service options for air package pick-up, enabling later pick-ups for urgent business needs for about one-quarter of all U.S. businesses.
Export volume per day increased 7pct, outpacing the market, despite decelerating economic growth in most areas of the world. The company's broad global network and unique products, such as UPS Paperless Invoice and international UPS Returns®, helped drive this gain. All major regions of the world posted solid volume increases although U.S. imports continued to decline. Revenue per piece was up 11.6pct, aided by higher fuel surcharges and favorable foreign currency exchange rates.
UPS completed a highly successful logistics effort for the Olympic Games in China as the company "delivered" the games to the world.
Investment in global infrastructure expansion also continued. In the fourth quarter, UPS will open its new hub in Shanghai. This is the first hub constructed by a U.S. carrier in China and will link all of China via Shanghai to UPS's international network with direct service to the Americas, Europe and Asia.
All units in this segment contributed to revenue growth of 9pct. Operating profit improved more than 30pct on 2007 adjusted results; on unadjusted results, the improvement more than doubled.
The Forwarding and Logistics operations again demonstrated the momentum seen in the first half of the year. Customers have responded well to the enhanced air freight portfolio that UPS unveiled in January.
UPS Freight Less-Than-Truckload performance was negatively impacted by the slowing U.S. economy. Nonetheless, the company is investing in this business to enhance its value proposition. UPS Freight recently announced time-in-transit improvements on more than 3,000 U.S. lanes. Over the past 18 months, UPS Freight has accelerated transit times on more than 12,000 lanes.
Outlook
"We've taken steps to effectively manage our costs and enhance service levels in an environment that proved substantially worse than we initially anticipated, with significant slowing toward the end of the quarter," said Kurt Kuehn, UPS's chief financial officer.
"Our focus on service, revenue management, cost reduction and our sound financial position will help us manage through these tough business conditions," Kuehn continued. "We've implemented a range of initiatives to ensure our network operation matches demand."
The CFO also noted UPS reduced its 2008 capital expenditure budget by USD 200 million to USD 2.8 billion and expects to reduce 2009 capital expenditures as well.
"Based on economic forecasts, we anticipate a challenging environment for a number of quarters going forward," he added. "We believe the U.S. consumer will be very conservative with spending this year. But we still expect 2008 earnings per share should be toward the lower end of the USD 3.50-to-USD 3.70 range that we provided mid-year."