UPS announced today that it suffered a 43% drop in Q3 operating and net profits but is seeing signsof recovery and winning international market share thanks to higher volumes.
A stabilising economic environment led to improving volume trends during the quarter, whileUPS’s International business continued to increase market share, the company stated.
“I’m encouraged by the signs of economic recovery that are becoming apparent, although westill have a long way to go,” said Scott Davis, chairman and CEO. “The business environment inthe third quarter began similarly to that of the preceding quarter. However, we did seeprofitability improvement due to effective cost management and firming volume later in thequarter,” added Kurt Kuehn, UPS’s chief financial officer.
In the three months ending September 30, 2009, the group’s operating profits were down 43.1%at $929 million while net income ended at $549 million, down 43.4%. The benefits of substantialcost reductions and productivity gains were more than offset by the economic impact of lowervolumes and changes in product mix, UPS said.
The group’s revenues declined 14.9% to $11,153 million, leaving the operating margin down to8.3% from 12.4% one year earlier. Consolidated volumes dropped 2.4% to 927 million packages.Average daily volume and revenue per piece declined 3.9% and 11.3%, respectively.
In the USA, the domestic package business saw its operating profit slump 54% to $514 millionon revenues down 12.4% at $6,868 million. The operating margin declined to 7.5% from 14.2%. USdomestic package volume dropped 3.6% to 799 million pieces and average daily volume declined 5.1%to 12.3 million packages. While Next Day Air volume increased 2.4%, ground decreased 6.2%. Revenueper piece declined 9.1% as a result of significantly lower fuel surcharges and lighter-weightpackages.
The International Package business had operating profits of $313 million, down 18.9%.International revenues declined 17.9% to $2,422 million, but the operating margin declined onlyslightly to 12.9% from 13.1%. International average daily volume rose 4% to 1.97 million packages.Domestic volumes in non-US markets increased 9.1% due to expansion of domestic services and anacquisition in Turkey. Export volume per day declined 3.2% but this outperformed themarket. Revenue per piece dropped 21%, reflecting the impacts of reduced fuel surcharges,currency and product mix.
The Supply Chain and Freight division had revenues of $1,863 million, down 19.8%, and itsoperating profit fell 20.9% to $102 million. But the operating margin was stable at 5.5%,fractionally down from 5.6%. Both the Logistics and Forwarding business units experiencedmoderation in the rate of revenue decline. The Logistics unit again achieved significantgrowth from its services to the healthcare industry. UPS Freight performance was negativelyimpacted by increasingly competitive conditions in the freight environment. Nonetheless, thebusiness outperformed the market and gained share while maintaining yields.
Looking ahead, CFO Kuehn said: “UPS is poised for the recovery when it comes. We’veinstituted cost initiatives that will approach $1.4 billion this year, making UPS more efficientthan ever. In addition, we will reduce our 2009 capital expenditures to $1.7 billion, down$500 million from our initial budget.”
Although there are signs of economic recovery, forecasters predict US consumers will spendconservatively for the holidays this year. “Our customers have widely differing views on theiroutlook for the holiday season. Nevertheless, UPS is primed to handle the seasonal package surge asit materialises,” Kuehn added. “Continuing our earnings momentum from the third quarter, weexpect earnings per diluted share within a range of $0.58 to $0.65 for the fourth quarter.”
