UPS posts strong earnings gain on growth across all segments

UPS has reported a 28% jump in net income for the third quarter thanks to a strengthening U.S. package business, record performances by both the international and non-package segments and two other modest gains.

Earnings per diluted share increased 27% to US$0.65 from US$0.51 last year, including gains due to the sale of a business unit and a favorable tax ruling. Without these items, earnings per diluted share were US$0.62, up 22% compared to the prior year.

The U.S. package business, paced by a strong 10.2% rise in Next Day Air® volume and a 2% increase in the larger ground business, grew 3.2% or 374,000 packages per day compared to the prior-year period. International export package volume climbed 8.1% as that unit posted the most profitable quarter in its history. Non-package revenue increased 6.2% and operating profit for that unit jumped 92%, including a gain on the sale of UPS Aviation Technologies.

“While there were many highlights in the quarter, the accelerated growth in U.S. package deliveries, increasing signs of U.S. economic growth and the strong international performance really stand out,” said Scott Davis, UPS’s chief financial officer. “We also were pleased with the continuing improvement on the non-package side, because we know the strategy of expanding our distribution and supply chain capabilities will feed the success of all parts of our business going forward.”

For the quarter ended Sept. 30, 2003, consolidated revenue totaled US$8.31 billion, up 7.2% from the US$7.75 billion reported during the same period in 2002. Consolidated operating profit increased 21% to $1.15 billion. Net income totaled US$739 million, an increase of 28% over the prior year’s US$578 million. Excluding the gains due to the sale of the business unit and a favorable tax ruling, net income totaled US$702 million, an increase of 21%.

Highlights by segment included:

U.S. package revenue totaled US$6.22 billion, up 5.6% compared to the prior year’s US$5.89 billion. Operating profit increased 2%, to US$825 million, despite continuing pressure from rising healthcare expenses and other benefit costs. Total daily volume in the United States rose 3.2% to 12 million packages per day, including a 10.2% gain in Next Day Air package volume and a strong 8.5% increase in deferred air volume. Ground volume increased 2% to 10 million packages per day.
International package revenue rose 15.7% to US$1.37 billion, while operating profit surged 171% from US$65 million in 2002 to US$176 million this year. That made the quarter the most profitable in the unit’s history, even though the third quarter normally lags with the summer vacation period. Operating margin for the segment was 12.8%, the fourth consecutive quarter with international operating margins over 10%. Total volume rose 3.8% to 1.23 million packages per day, with average export volume increasing 8.1% to 468,000 packages per day. The Asia-Pacific region posted another strong export gain of 14%. U.S. export volume rose 6.5%, the largest such increase since 2000.
The non-package segment saw revenue climb 6.2% to US$723 million and operating profit increase 92% to US$146 million, including the US$24 million gain on the sale of UPS Aviation Technologies. The improvement in operating profit was driven not only by revenue growth and new customer contracts, but also by the successful integration of acquisitions into UPS Supply Chain Solutions. UPS Supply Chain Solutions was rated the No. 1 logistics provider by Inbound Logistics earlier this month,
The quarter also included the benefit of an income tax reduction of US$22 million based on a federal court ruling regarding the expensing of aircraft maintenance costs.

For the nine months ended Sept. 30, 2003, consolidated revenue increased 6.7% to US$24.55 billion, while operating profit rose 8.4% to US$3.17 billion. Net income climbed 21.5%, from US$1.68 billion to US$2.04 billion. Diluted earnings per share increased 21.6% to US$1.80.

Davis said the company is encouraged by the momentum in its U.S. business. This is being driven by signs of economic recovery, expanded customer relationships, the deployment of new technology and improved customer access through The UPS Store network.

“In light of our momentum and the firming U.S. economy, we believe UPS is going to have a strong fourth quarter,” Davis predicted. “We expect to see additional improvement in our U.S. domestic segment with volume growth of 3% to 4%. We anticipate the international and non-package segments will continue the solid growth trends we saw in the third quarter.”

Davis said the company expects fourth quarter earnings to be in the range of US$0.65 to US$0.70 per diluted share compared to the US$0.59 recorded during the period last year. The company expects to fully achieve its targeted earnings growth of 10-to-15% for the full year, he added.