Strong international growth produces solid quarter for UPS

UPS today reported a 7.9% increase in adjusted diluted earnings per share to USD0.96 on a 3.3% revenue gain, thanks to a strong performance by its international operation and significant improvement by its supply chain and freight segment.

Those results exclude an impairment charge relating to aging jet aircraft and expenses for a voluntary separation program completed during the quarter. Including these charges, diluted earnings per share declined 12.4% to USD0.78 compared to the same period in 2006.

"We are pleased with the company's first quarter performance," said Mike Eskew, UPS chairman and CEO. "Strong gains in our international package and supply chain and freight businesses helped offset the impact of a slowing U.S. economy. We will continue to invest aggressively to seize the growth opportunities created by the rise in global trade."

Consolidated Results 1Q 2007 As Adjusted 1Q 2006
Revenue USD11.9 B USD11.5 B
Operating profit USD1.36 B USD1.65 B USD1.56 B
Operating margin 11.4 % 13.8 % 13.5 %
Average volume per day 15.13 M 15.06 M
Diluted earnings per share USD0.78 USD0.96 USD0.89

For the three months ended March 31, 2007, adjusted operating margin improved 30 basis points to 13.8%. The supply chain and freight segment reported adjusted operating profit of USD54 million, an improvement of USD79 million.

During the period, UPS took an impairment charge of USD221 million on certain Boeing 727 and 747 aircraft, including related engines and parts, due to the acceleration of the planned retirement of these aircraft. In addition, the company realized a charge to expense of USD68 million to reflect the cost of a previously announced voluntary separation opportunity. The charge covered cash payouts, the acceleration of stock compensation and certain retiree healthcare benefits for participating employees. The effect of these two items after tax was USD184 million, which reduced diluted earnings per share by USD0.18.

The aircraft impairment charge impacted the U.S. Domestic Package segment by USD159 million and the International Package segment by USD62 million. The separation charge impacted the U.S. Domestic Package segment by USD53 million, the International Package segment by USD7 million and the Supply Chain and Freight segment by USD8 million.

Cash Position
UPS ended the quarter with USD2.4 billion in cash and marketable securities. UPS also:

Generated USD1.9 billion in free cash flow.
Purchased 8.9 million shares.
Paid dividends totaling USD828 million. The dividend was increased 11% during the quarter.
Invested USD675 million in capital expenditures.

U.S. Domestic Package 1Q 2007 As Adjusted 1Q 2006
Revenue USD7.55 B USD7.46 B
Operating profit USD941 M USD1.15 B USD1.19 B
Operating margin 12.5 % 15.3 % 15.9 %
Average volume per day 13.3 M 13.3 M

Consolidated volume in the U.S. operation was flat for the quarter as a result of a slowing U.S. economy. Next Day Air® volume declined marginally and deferred volume dropped 1.8%. Ground volume was flat, although revenue per piece on ground products remained strong with a gain of 3%.

During the quarter, UPS unveiled an industry-leading Delivery InterceptSM option in the United States that allows shippers to intercept and reroute packages before they're delivered. The company also unveiled enhancements to Web-based shipping tools that allow customers to streamline the preparation, management and tracking of multiple types of shipments, whether small package or freight, domestic or international.

International Package 1Q 2007 As Adjusted 1Q 2006
Revenue USD2.39 B USD2.16 B
Operating profit USD371 M USD440 M USD395 M
Operating margin 15.6 % 18.4 % 18.3 %
Average volume per day 1.8 M 1.7 M

Export volume showed strong growth with a 10% gain, led by a jump of more than 20% from Asia and a double-digit increase from Europe.

In early April, UPS and the Chinese government opened the way for construction of UPS's International Air Hub at Pudong International Airport in Shanghai. This facility, expected to be operational next year, expands UPS's steadily increasing presence in China in support of trade growth in that part of the world.

Supply Chain and Freight 1Q 2007 As Adjusted 1Q 2006
Revenue USD1.97 B USD1.90 B
Operating profit USD46 M USD54 M (USD25 M)
Operating margin 2.3 % 2.7 % (1.3 %)

The Supply Chain and Freight segment posted a second consecutive quarter of improving results. The Forwarding and Logistics unit achieved excellent cost control and completed the restructuring efforts begun last year. Despite the challenging Less-than-Truckload (LTL) environment, ground freight posted increased revenue and positive shipment growth.

Outlook
"We remain excited about the long-term growth opportunities ahead for UPS," said Scott Davis, vice chairman and CFO. "The U.S. economy was softer than we originally anticipated, but continued rapid growth outside the United States and steady improvements from our Supply Chain and Freight segment are expected to produce a solid performance for the company in 2007."

Davis said UPS is projecting earnings for the second quarter in a range of USD1.00 to USD1.05 per diluted share compared to USD0.97 for the second quarter of 2006. He also reaffirmed the company's annual target of a 6-to-10 percent increase in adjusted diluted earnings per share.