UPS earnings soar 71% in 2Q

UPS has announced diluted earnings per share of $0.84 for the second quarter of 2010 – a 71% jump over the adjusted earnings of the prior-year period. Global revenue increased 13%, generating a 57% increase in operating profit to $1.4bn.

On a reported basis, diluted earnings per share increased 91% over the $0.44 in the second quarter of 2009.

“UPS fired on all cylinders in the second quarter even in the face of a mixed global economic environment,” said Scott Davis, UPS’s chairman and CEO. “Thanks to superb execution, our US domestic reorganisation is producing better than expected results. Substantial growth in our international segment continues to outpace the market. It’s clear the strategic direction we’ve set for the company is proving successful.”

Based on expectations of continued momentum in every segment, UPS has increased its guidance for 2010 adjusted earnings to a range of $3.35 to $3.45 per diluted share, a 45%-to-50% increase over last year.

			Adjusted
Consolidated Results	2Q 2010	2Q 2009	2Q 2009
Revenue	$12.2 B	$10.8 B
Operating profit	$1.4 B	$895 M
Operating margin	11.5 %	8.3 %
Average volume per day	14.8 M	14.3 M
Diluted earnings per share	$0.84	$0.44	$0.49

For the three months ended June 30, 2010, operating margin expanded 320 basis points to 11.5% and consolidated volume totalled 948m packages, a 4% increase. Revenue per piece improved 7%, reflecting higher base rates, fuel surcharge increases and heavier average shipment weight.

In the prior-year quarter, UPS took a $48m after-tax charge for the re-measurement of certain foreign currency obligations that did not qualify for hedge accounting treatment. That adjustment reduced second quarter 2009 diluted earnings per share by $0.05.

As the quarter ended, President Obama named Davis to the President’s Export Council. As an industry leader, Davis will advise the administration on policies and programs to improve US exports.

Cash Position

For the six months ending June 30, UPS generated more than $2.5bn in free cash flow. The company also: Paid dividends totalling $910m; Invested $690m in capital expenditures; Repurchased approximately 7m shares at a cost of $425m; and ended the period with more than $4bn in cash and marketable securities.

U.S. Domestic Package	2Q 2010	2Q 2009
Revenue	$7.27 B	$6.79 B
Operating profit	$748 M	$476 M
Operating margin	10.3 %	7.0 %
Average volume per day	12.62 M	12.47 M

Operating profit climbed 57% to $748m. Revenue increased 7% with margin expansion of 330 basis points. This operating leverage was driven by improved yields and additional efficiencies throughout the UPS integrated network.

Average daily package volume rose more than 1% during the quarter, driven by a 2% growth in ground volume. Revenue per piece improved 6%, primarily through higher fuel surcharges and increases in base pricing. Yields on air products climbed more than 11%.

International Package	2Q 2010	2Q 2009
Revenue	$2.77 B	$2.25 B
Operating profit	$521 M	$293 M
Operating margin	18.8 %	13.0 %
Average volume per day	2.18 M	1.82 M

The operating profit for the segment increased 78% to $521m on a 23% jump in revenue. Operating margin improved 580 basis points to 18.8%. Export volume increased 15%, outpacing the market due to strong growth in all regions with Asia leading the way, up more than 40%.

Non-US 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 and Canada.

During the quarter, UPS announced new alliances with its local service partners in Malaysia and Vietnam. These agreements will provide greater access to UPS’s broad portfolio of services and superior global network for customers in these important emerging markets.

Supply Chain and Freight	2Q 2010	2Q 2009
Revenue	$2.16 B	$1.79 B
Operating profit	$133 M	$126 M
Operating margin	6.1 %	7.0 %

Each business unit in the segment improved profitability. Forwarding led the way with tonnage growth exceeding 30%. However, margin expansion was limited due to capacity constraints in the global air freight market.

UPS Freight revenue grew 10% over last year, driven by improved yield and higher weight per shipment. As expected, UPS Freight returned to profitability in the second quarter.

During the quarter, UPS hosted its fifth annual Healthcare Forum in Washington, D.C. Healthcare logistics experts gathered to discuss UPS solutions that create more efficient supply chains. In addition, trends were discussed on healthcare reform, regulatory issues and opportunities in emerging markets.

Outlook

“UPS’s performance in the second quarter was driven by our ability to respond to customers’ needs through our broad product portfolio and integrated global network,” said Kurt Kuehn, UPS’s chief financial officer. “We experienced strong revenue growth across the board, with substantial margin expansion in our U.S. and International segments.

“Despite the anticipated slow pace of the US recovery and a cautious outlook for Europe, we are confident in our ability to grow the business and improve profits,” Kuehn added. “Therefore we are raising our full year 2010 guidance with expected adjusted earnings growth of 45%-to-50% per share.”