UPS has recorded heavy double-digit drops in revenues and profits due to the slowing global economyimpacting both domestic and international parcel operations with lower volumes.
For the three months ended June 30, 2009, UPS revenue declined 16.7% to €10.83 billion whileits net income was nearly halved falling by 49% to $445 million with diluted earnings per share of$0.44 compared to $0.85 the prior year. The operating profit also slumped heavily by 38.4% to €895million. This left the operating margin down 8.3%.
The company delivered consolidated volume of 914 million packages which equals a 4.7% dropcompared to last year.
In the USA, domestic package revenue declined 12% to $6.79 billion but operating profitdropped more dramatically by 47.1% from $899 million to $476 million year on year. Average dailyvolume declined 4.6% in the second quarter. Air volume was flat while ground volume declined 5.4%.Revenue per piece was down 7.8% due to the decrease in fuel surcharges, continuing the trend towardlighter-weight packages and changes in product mix. Even with the volume decline, this businessgained market share, UPS said in a statement.
Effective cost management enabled UPS to reduce labour hours, miles driven and block hoursflown by a greater percentage than volume declines. However, savings from these reductions were notenough to offset fully the impact from lower revenue.
“The global economic environment pressured our performance, but UPS remains financially verystrong,” said Scott Davis, UPS chairman and CEO. “We continue to invest in growth opportunities,even as UPSers improve productivity and help our customers manage through these challenging times.We are a company that can weather this recession, positioning ourselves well to benefit wheneconomic recovery occurs.”
UPS international package revenues slumped dramatically 23.8% to €2.25 billion. Similarly,the operating profit fell 28% to 293 million. The operating margin remained flat with a slight dropto 13% from the previous 13.8% due to effective cost management.
Average daily international export volume decreased 7.3%. Without the impact from the timingof Easter, export volume would have been down approximately 5%, UPS emphasized.
During the second quarter, UPS continued its global investments with the acquisition of itsservice providers in Slovenia and Turkey. The company also established a joint venture in Dubai tomanage and grow UPS package, freight and contract logistics services across the Middle East, Turkeyand portions of Central Asia.
UPS said that its Supply Chain and Freight business decreased its revenue 23.3% to $1.79billion as a result of reduced fuel surcharges and lower volume. Operating profit dropped 14.9% to$126 million. The operating margin expansion was attributed to improved revenue management andeffective cost control in Forwarding and Logistics. UPS Freight posted quarter-over-quarterimprovements in LTL tonnage and shipments. This business unit continued to take share in anextremely competitive environment. Its 1.9% decline in shipments year-over-year was in sharpcontrast to the double-digit market decline, the company explained.
To meet the growing supply chain needs of pharmaceutical, medical device and biotechcompanies, UPS opened healthcare logistics facilities in Puerto Rico and the Netherlands during thesecond quarter. The express and parcel operator also enhanced its worldwide supply chain servicecapabilities with the introduction of new global technology for critical parts fulfilment and theestablishment of a field stocking location network in India.
“The economic environment continues to be difficult. Declines in both our domestic andinternational businesses appear to be stabilising but volumes will remain significantly below lastyear’s levels,” said Kurt Kuehn, UPS CFO.
He added that UPS exceeded targeted cost savings while still keeping the high level ofservice, and also investing for the future. “We are managing our business with a keen eye onbalancing cost cutting with strategic investment.”
Looking ahead, Kuehn estimates the business environment in the third quarter to be similar tothe second quarter. “As a result, we are providing the same guidance as we did for the secondquarter – earnings per share within a range of $0.45 to $0.55.”
