UPS Earnings Climb 22% On Global Volume Growth

UPS  today reported a robust 22.2% gain in diluted earnings per share for the secondquarter of 2005, driven by double-digit export volume gains in every international region and an

For the three months ended June 30, earnings per diluted share were $0.88, up from the $0.72reported in the prior year. Net income totaled $986 million compared to the $818 million reportedfor the period in 2004. Revenue of $10.19 billion increased 14.9% from the $8.87 billion reportedlast year, reflecting, in part, the acquisition of Menlo Worldwide Forwarding late last year.

Consolidated average daily worldwide volume for the second quarter rose by 557,000 packages, or4.1%, to 14.1 million. Worldwide average revenue per piece showed a strong 4.7% increase.

“UPS is a company that’s on the move,” said Mike Eskew, UPS chairman and CEO. “Our U.S. domesticvolume climbed well above our expectations. And the international segment’s performance wasoutstanding with export volume growth exceeding 18%.”

Consolidated operating profit rose 18.2% to $1.55 billion compared to $1.31 billion for theprior-year period.

Highlights by segment for the second quarter included:

International package revenue increased 22.7% to $2 billion. Operating profit climbed 41.3% to$397 million. Export volume grew an impressive 18.2%, led by Asia export volume gains of 39.5%.China again drove Asia with export volume rising 99%. Average revenue per piece increased 9.4%.
U.S. domestic package revenue grew 5.7% during the period to $6.94 billion on 3.2% volumegrowth. Operating profit rose 13.2% to $1.12 billion and operating margin increased 110 basispoints to 16.1%. Pricing remained firm with an increase in average revenue per piece of 2.4%.
Revenue for the supply chain solutions segment increased 84.9% to $1.25 billion primarilythrough the addition of Menlo Worldwide Forwarding. Profitability declined due to the expectedcosts of integrating the Menlo operation. However, the company expects $50-to-$100 million insynergies in 2006 and at least $200 million in 2007.

The strong financial performance capped a quarter of service expansions, product and technologyinnovations and acquisition activity. On the international front, UPS became the first carrier tofly direct to Guangzhou, China; launched a new Europe-to-U.S. flight leg to improve next dayservice, and signed an agreement to construct a new air hub in Shanghai. Then as the quarter ended,UPS announced it was launching express package service within China.

The company was equally active on the domestic front. UPS unveiled an important enhancement toits UPS Quantum ViewSM visibility tool, one that automatically notifies customers of all theirinbound packages in the UPS system. UPS became the only carrier in the industry to accept groundauthorized return packages at its 40,000 drop boxes, and announced a dramatic expansion of itsearly morning delivery territory.

UPS also has been active in the acquisition arena. During the quarter, the company reachedagreement to acquire the Overnite Corp. to provide LTL shipping options to customers. Thistransaction should close on Aug. 5.

For the third quarter, Chief Financial Officer Scott Davis said UPS is projecting dilutedearnings per share in a range of $0.81 to $0.87 compared to the adjusted $0.70 reported during theprior-year period. (The 2004 diluted earnings per share on a GAAP basis were $0.78.)

The strength of the second quarter and prospects for the remainder of the year have prompted UPSto update the 2005 outlook toward the higher end of its previous guidance, Davis said. For the full2005 year, UPS now expects an increase of 18-to-20% in earnings per diluted share compared to theadjusted $2.90 reported in 2004. (The 2004 diluted earnings per share on a GAAP basis were$2.93.)

“Our U.S. business is strong and we see great opportunities internationally, so we believe 2005will be an excellent year for the company,” the CFO concluded.

UPS is the world’s largest package delivery company and a global leader in supply chainservices, offering an extensive range of options for synchronizing the movement of goods,information and funds. Headquartered in Atlanta, Ga., UPS serves more than 200 countries andterritories worldwide. UPS’s stock trades on the New York Stock Exchange (UPS) and the company canbe found on the Web at UPS.com.

EDITOR’S NOTE: UPS CFO Scott Davis will discuss second quarter results with investors andanalysts during a conference call later today at 10:00 a.m. EDT. That conference call is open tolisteners through a live Webcast. To access the call, go to www.shareholder.com/UPS and click on “EarningsWebcast.”

We supplement the reporting of our financial information determined under generally acceptedaccounting principles (GAAP) with certain non-GAAP financial measures, including, as applicable,“as adjusted” operating profit, operating margin, pre-tax income, net income and earnings pershare. We believe that these adjusted measures provide meaningful information to assist investorsand analysts in understanding our financial results and assessing our prospects for futureperformance. We believe these adjusted financial measures are important indicators of our recurringoperations because they exclude items that may not be indicative of or are unrelated to our coreoperating results, and provide a better baseline for analyzing trends in our underlying businesses.Furthermore, we use these adjusted financial measures to determine awards for our managementpersonnel under our incentive compensation plan.

For the quarters ended June 30, 2005 and 2004, our operating profit, net income and earnings pershare did not exclude the impact of any transactions that were reflected in our financialstatements prepared under generally accepted accounting principles. As previously reported for thequarter ended September 30, 2004, we presented net income and earnings per share excluding theimpact of a credit to tax expense due to the resolution of various tax matters. As previouslyreported for the quarter ended December 31, 2004, we presented operating profit, net income andearnings per share excluding the impact of a charge to pension expense due to the consolidation ofdata collection systems, an impairment charge on Boeing 727, 747 and McDonnell Douglas DC-8aircraft and tax credits resulting from several items. We believe it is useful to present operatingprofit, net income and earnings per share excluding the impact of these items because they areexpected to have minimal implications on future financial performance.

Because non-GAAP financial measures are not standardized, it may not be possible to comparethese financial measures with other companies’ non-GAAP financial measures having the same orsimilar names. These adjusted financial measures should not be considered in isolation or as asubstitute for GAAP operating profit, operating margin, net income and earnings per share, the mostdirectly comparable GAAP financial measures. These non-GAAP financial measures reflect anadditional way of viewing aspects of our operations that, when viewed with our GAAP results and thepreceding reconciliations to corresponding GAAP financial measures, provide a more completeunderstanding of our business. We strongly encourage investors to review our financial statementsand publicly-filed reports in their entirety and not to rely on any single financial measure.

Except for historical information contained herein, the statements made in this releaseconstitute forward-looking statements within the meaning of Section 27A of the Securities Act of1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements,including statements regarding the intent, belief or current expectations of UPS and its managementregarding the company’s strategic directions, prospects and future results, involve certain risksand uncertainties. Certain factors may cause actual results to differ materially from thosecontained in the forward-looking statements, including economic and other conditions in the marketsin which we operate, governmental regulations, our competitive environment, strikes, work stoppagesand slowdowns, increases in aviation and motor fuel prices, cyclical and seasonal fluctuations inour operating results, and other risks discussed in the company’s Form 10-K and other filings withthe Securities and Exchange Commission, which discussions are incorporated herein by reference.