UPS “exceeds expectations” with Q3 growth

UPS said it had “exceeded expectations” after announcing a global revenue increase of 9.3%, and a 62% operating profit growth, for the third quarter year-on-year. The company generated $1.5bn in adjusted operating profit, a 62% increase, whilst announcing adjusted diluted earnings per share of $0.93 for Q3 2010, a 69% improvement.

On a reported basis, diluted earnings per share were $0.99, an 80% increase over the $0.55 in the same period last year.

Furthermore, UPS recorded an after-tax benefit of $61m on the sale of real estate during the time frame.

“UPS once again exceeded expectations due to superior execution across all business units and our ability to provide solutions that creates value for our customers,” said Scott Davis, UPS chairman and CEO.

“We continue to deliver significant earnings growth and margin expansion in the current economic environment. This is a true testament to what can be accomplished when you have excellent people, superior service and an unmatched global portfolio,” he added.

Based on the company’s performance, UPS has increased its guidance for 2010 adjusted diluted earnings to a range of $3.48 to $3.54 per share, a 51%-to-53% increase over last year.

For the three months ended 30 September 2010, revenue increased 9.3% on average daily volume growth of 5%. UPS delivered 958m packages in the quarter.

Adjusted operating margin expanded 410 basis points to 12.4%. On a reported basis, operating margin was 13.3%.

For the nine months ending 30 September 2010, UPS generated $3.5bn in free cash flow. The company also paid dividends totaling $1.36bn, invested $1bn in capital expenditures, and repurchased 9.3m shares at a cost of $589m.

US Domestic Packages

Adjusted operating profit increased 77% to $911m on revenue growth of 6%. The margin expansion of 500 basis points was driven by volume growth, improved yields and the benefits of more streamlined operations. Reported operating profit was $1.02bn, a 98% increase.

Average daily package volume expanded 3.6% during the quarter due to growth in Ground and Next Day Air. Revenue per piece improved 4%, primarily through increases in base pricing and higher fuel surcharges.

During the quarter, UPS introduced Returns Flexible Access, expanding the options for consumers to return goods to retailers. The combination of UPS and postal access channels creates the most extensive returns network available to consumers today.

International Packages

The operating profit for the segment increased 34% to $419m on an 11% increase in revenue. Operating margin improved 280 basis points to 15.7%. Export average daily volume increased 13%, outpacing the market, due to growth in all regions with Asia leading the way, up more than 30%.

Non-US domestic volume increased 14% with strength across Europe, Canada and Mexico.

As part of an on-going strategy to grow its business in emerging markets, UPS entered into an expanded alliance with its local domestic courier in Indonesia. This agreement extends the footprint for pick-up and delivery of international express packages throughout the country.

Supply Chain and Freight

Revenue grew 19% with the Forwarding business unit leading the way. Operating profit jumped 74% to $177m, powered by Forwarding and Logistics.

The operating margin for the segment increased 250 basis points to 8.0%. This margin expansion was primarily driven by improved revenue management, increased tonnage and improved operational efficiencies in Forwarding and Logistics.

UPS Freight revenue grew 14% due to improved yield and increases in gross weight hauled.

During the quarter, UPS launched Preferred LCL Ocean Freight, a new service that provides up to 20% faster door-to-door delivery than other less-than-container-load (LCL) services on the market.

Outlook

“UPS generated superior performance across all segments,” said Kurt Kuehn, UPS’s chief financial officer. “This is a direct result of the successful execution of our long-range strategy.

“I am confident in UPS’s ability to generate strong cash flow and continued earnings growth while investing in growth opportunities around the world,” Kuehn added.  “Based on the projections of retailers and economists, we expect modest growth during the holiday peak season. We are raising our full-year 2010 guidance with adjusted earnings per share expected to grow more than 50% over last year. “