UPS sees Q1 profit jump
UPS has announced that company earnings had jumped 37%, whilst revenue had risen 7%, for the first quarter of 2010. The company posted adjusted diluted earnings per share of $0.71, a 37% gain over the adjusted $0.52 for the prior-year period. Revenue increased 7% to $11.7bn. Growth in the international package and supply chain businesses, yield improvement and increased operating leverage resulted in margin expansion in all business segments.
On a reported basis, diluted earnings per share for the first quarter of 2010 were $0.53 compared to $0.40 the prior year, a 33% improvement.
“UPS’s global strategy clearly proved beneficial in the first quarter,” said Scott Davis, UPS’s chairman and CEO. “Our broad product portfolio and solutions-based approach to customers’ logistics needs enabled the company to capture new business. In addition, our worldwide integrated network generated significant margin expansion. With global economies showing signs of recovery and UPS’s strong start to 2010, we are optimistic about this year and the future.”
For the three months ended March 31, 2010, consolidated volume totaled 940m packages, a 3% increase. Average revenue per piece also increased 3%, reflecting general rate increases and higher fuel surcharges.
In the quarter, UPS incurred a $98m pre-tax restructuring charge related to the reorganisation of the U.S. Domestic Package segment; a $38m pre-tax loss on the sale of a specialized transportation business in its supply chain unit in Germany, as well as a $76m non-cash charge to income tax expense resulting from a change in the tax filing status of a German subsidiary. The impact of these charges reduced net income by $175m and diluted earnings per share by $0.18.
In the prior-year quarter, UPS took a $181m non-cash impairment charge on its DC-8 fleet, which reduced net income by $116m, or $0.12 per share.
Cash Position
In the quarter UPS generated $1.3bn in free cash flow. The company also:
- Paid dividends totaling $470m.
- Invested $280m in capital expenditures.
- Repurchased more than 4m shares at a cost of $260m.
- Ended the quarter with $3.1bn in cash and marketable securities.
Adjusted operating profit increased 17% on revenue improvement of 2% due to yield gains and network efficiencies, resulting in a margin expansion of 120 basis points. On a reported basis, operating profit increased 46%.
Average volume per day was up slightly during the quarter, the first year-over-year growth in two years. Revenue per piece improved 2% due to increases in base pricing and higher fuel surcharges, partially offset by changes in product mix between ground and air services.
During the quarter, UPS opened the second phase of its Worldportsm air hub expansion, improving sort capacity from 350,000 to 416,000 packages per hour. The expansion helps further optimise the UPS air network, enabling the use of larger, more fuel efficient aircraft.
In addition, the company introduced UPS Smart Pickupsm, an industry-first application that combines customer and operational systems to ensure a driver stops to pick up a package only when a customer has prepared a package for shipment. The process is easy, automated and transparent to the customer and will allow UPS to eliminate an estimated 8m miles of driving annually.
The International Package segment posted an 18% jump in revenue with operating profit increasing 45%. Average daily volume also increased 18% during the quarter, outpacing market growth once again with all regions contributing. Export volume increased more than 9% due to strong growth in all major trade lanes.
Non-U.S. domestic volume increased 24%, driven by an acquisition in Turkey in the third quarter of last year, as well as 13% organic growth, powered by strength in core European countries.
In the quarter, UPS began operating its new intra-Asia air hub in Shenzhen, China, slashing at least a day off shipment time-in-transit. The company also opened a state-of-the-art facility at the Calgary International Airport to expedite international shipments.
Each business unit in the segment recorded revenue gains, with Forwarding and Logistics up 16%. Adjusted operating profit for the segment more than doubled led by gains in Logistics, which continued to benefit from strength in the high-tech and healthcare sectors. Reported operating profit improved 33%.
During the quarter, the Logistics business unit expanded its service parts logistics (SPL) network to 89 cities in China. These facilities provide same-day or next-business-day delivery of critical parts, particularly for high-tech, medical equipment and aerospace customers. UPS’s SPL network is the world’s largest with service in 120 countries.
In a difficult market environment, UPS Freight posted a 6% LTL revenue gain driven by a 10% increase in revenue per hundredweight.
Outlook
“UPS achieved significant operating leverage in an improving global economic environment,” said Kurt Kuehn, UPS’s chief financial officer. “In the first quarter we realised the benefits from the hard work we have been doing to streamline our operations. First quarter results exceeded our expectations and set a strong foundation for the rest of 2010.
“We expect first quarter trends to continue through the year, producing revenue growth and additional operating leverage,” he added. “Therefore, UPS recently raised adjusted earnings guidance for the year to a range of $3.05 to $3.30 per diluted share, an increase of 32% to 43% over adjusted 2009 results.
“Going forward, we’re determined to sustain the enhancements we’ve made to our cost structure,” Kuehn continued. “We’ll continue to invest for the future while remaining focused on disciplined, profitable growth. We’re very confident that our diversified, global product portfolio will help us capitalise on the growth opportunities ahead.”
