UPS “better positioned”: 4Q results

UPS chairman and CEO Scott Davis said the company has emerged from the “worst recession in decades leaner, more focused and better positioned” after publishing its 4Q results. UPS announced diluted earnings per share of $0.75 for the fourth quarter of 2009, above the company’s original guidance of $0.58 to 0.65 per share, due in large measure to strong performance by its international segment. That segment saw volume growth, a substantial gain in operating profit and improvement to a 16.7% operating margin.

The quarter’s diluted earnings per share declined 9.6% compared to the $0.83 in adjusted diluted earnings per share a year ago. Reported earnings per share for 2008 were $0.25.

For 2009, UPS generated free cash flow of $4.1bn and posted adjusted operating profit of $4.0bn. On a reported basis, operating profit was $3.8bn. Adjusted earnings per share were $2.31 and $2.14 on a reported basis.

“UPS ended 2009 on a high note by leveraging network changes implemented throughout the year and executing flawlessly during the peak holiday shipping period, which was stronger than we had anticipated,” said UPS chairman and CEO Scott Davis. “The company demonstrated its ability to manage effectively in changing market conditions. UPS has emerged from the worst recession in decades leaner, more focused and better positioned to take advantage of increased global trade.”

4Q 2008

Consolidated Results

4Q 2009

4Q 2008

Adjusted

Revenue

$12.38 B

$12.70 B

Operating profit

$1.26 B

$803 M

$1.38 B

Operating margin

10.2%

6.3%

10.9%

Average volume per day

17.3 M

17.3 M

Diluted earnings per share

$0.75

$0.25

$0.83

For the three months ended 31 December 2009, package volume rose 1.4% to 1.1bn pieces while average volume per day was unchanged at 17.3m packages.

During the holiday shipping season, global volume exceeded 22m packages on eight days, including two on which it exceeded 24m packages. UPS experienced more delivery volume than in 2008 on each of the seven days before Christmas. A well-executed peak season operating plan and significant growth in online retail sales contributed to the stronger-than-expected results for the quarter.

For the full year, the company delivered 3.8bn packages, an average of 15.1m per day, down from 15.5m in 2008. Revenue decreased 12% to $45.3bn.

Cash Position

UPS ended 2009 in a strong financial position. In addition to exceptional free cash flow, UPS also:

  • Paid $1.8bn in dividends.
  • Invested $1.6bn in capital expenditures.
  • Repurchased a total of 10.9m shares for $569m.
  • Ended the year with $2.1bn in cash and short-term investments.
US Domestic Package

4Q 2009

4Q 2008

Revenue

$7.55 B

$7.99 B

Operating profit

$764 M

$932 M

Operating margin

10.1%

11.7%

Average volume per day

14.9 M

15.1 M

For the fourth quarter, air volume increased with Next Day Air up 2.8% and deferred up 4.3%. However, ground volume per day was down 2.9%. Total US average daily volume decreased 1.9%. Operating margin improved sequentially to 10.1%, the highest in 2009. The 5.2% decline in revenue per piece was driven primarily by lower fuel surcharges and weight declines.

In the quarter, UPS pushed ahead the mobile shipping arena with the introduction of applications for iPhone, iPod and BlackBerry devices. In addition, the company expanded its WorldShip platform with integration of a freight forwarding capability that complements its small package and LTL freight shipping processes.

On 8 January 2010, UPS announced it was restructuring the US Domestic Package segment. By leveraging technology and the management skills of its people, the company will create larger geographic operating entities and provide more marketing resources at the local level. The new structure will be in place by early April.

4Q 2008

International Package

4Q 2009

4Q 2008

Adjusted

Revenue

$2.79 B

$2.64 B

Operating profit

$467 M

$366 M

$393 M

Operating margin

16.7%

13.9%

14.9%

Average volume per day

2.4 M

2.2 M

International operating profit jumped 18.8% on an adjusted basis and 27.6% on a reported basis on revenue growth of 5.8%.

Average daily volume growth of 11.8% was driven by increases of 3.1% in export and 17.8% in domestic. These gains and strong cost management contributed to an operating margin of 16.7%, the highest since the fourth quarter of 2007. All regions experienced export volume growth, led by Asia and the United States. Domestic volume improvement was driven by a third-quarter acquisition in Turkey along with strong performance in Europe and Canada.

During the quarter, UPS continued investing for the future with the opening of its expanded hub in Toronto, Ontario, which more than doubled its package handling capability.

4Q 2008

Supply Chain and Freight

4Q 2009

4Q 2008

Adjusted

Revenue

$2.03 B

$2.07 B

Operating profit

$28 M

($495 M)

$53 M

Operating margin

1.4 %

(23.9%)

2.6%

Reductions in segment revenue and operating profit were caused by declines in global forwarding and UPS Freight.

Forwarding’s operating margin was challenged by rapidly escalating transportation costs stemming from a surge in demand in a capacity-constrained environment out of Asia.

The Logistics business recorded an increase in revenue, driven by growth in the healthcare sector. Improved operating efficiencies and contract management produced strong results.

UPS Freight experienced a difficult fourth quarter. Revenue per hundredweight increased, but shipments were flat and tonnage declined. The unit posted an operating loss for the quarter due to the extremely competitive pricing environment in the LTL business. Year-over-year, UPS Freight gained market share.

Outlook

“Economic forecasts indicate gradual improvement as 2010 unfolds,” said Kurt Kuehn, UPS’s chief financial officer. “The first quarter will be the most challenging of the year for UPS with profitability only slightly better than last year.

“For 2010, UPS will substantially improve performance by leveraging our extensive product portfolio and global network,” Kuehn continued. “As a result, we anticipate that diluted earnings per share should be within a range of $2.70 to $3.05, an increase of 17% to 32% over 2009 results. We also expect cash generation to remain strong in 2010, with capital expenditures totaling $1.8bn. This is well below our historical range but still supports growth opportunities.”

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