UPS today announced lower profits and a volume drop for the third quarter ending September 30,2008, but stressed its international and supply chain businesses remained strong despite a
challenging global economic environment.The US group reported diluted earnings per share of $0.96 for its third quarter on a 7.4%increase in revenue. This represents an 8.6% decline from the $1.05 per share reported on anadjusted basis for the comparable 2007 quarter. Unadjusted diluted earnings per share of $1.02 forthe 2007 third quarter included a restructuring charge and related expenses for a supply chainbusiness in France. Diluted earnings per share for this year’s third quarter declined 5.9%compared to this amount.
“UPS managed the business well in this very tough economic climate,” said Scott Davis, UPS’schairman and CEO. “We continue to see growth in our international and supply chain businesseswhile maintaining our focus on cost control and revenue management throughout ourorganization. UPS also is investing to ensure growth in the future so that the company will beeven stronger when the global economy rebounds.”
For the three months ended Sept. 30, 2008, consolidated revenue per piece increased 8.1%while package volume per day declined 2.6%. Revenues rose to $13.1 billion from $12.2 billion oneyear earlier.
Operating profit declined 7% to $1.63 billion compared to adjusted operating profit lastyear. The decline was 4.4% on an unadjusted basis. The operating margin declined to 12.4% from14%. Operating results were positively impacted by productivity gains and benefits from thetwo-month lag in fuel surcharges, UPS pointed out. The impacts, however, were more than offsetby economic deceleration and the high cost of fuel, which drove product mix changes.
In the USA, average daily domestic volume declined 3.4%, reflecting on-going weakness in theUS economy. Air products posted declines of 6.4% and ground volume decreased 2.8%. Domesticrevenue per piece increased 5.8%, led by UPS Next Day Air rising 11% as a result of higher fuelsurcharges and continued focus on revenue management. Third quarter results were positivelyimpacted by about $90 million due to the two-month lag in fuel surcharges. Revenue was up to $7.8billion from $7.55 billion one year earlier, but the operating profit dropped to $1.1 billion from$1.2 billion.
UPS said its international package business increased revenues to $2.9 billion from $2.5billion in Q3, 2007. But the operating profit dropped to $386 million from $428 million, leavingthe operating margin down to 13.1% from 16.9%. Export volume per day increased 7%, outpacing themarket, despite decelerating economic growth in most areas of the world. All major regions ofthe world posted solid volume increases although US imports continued to decline. Revenue perpiece was up 11.6%, aided by higher fuel surcharges and favourable foreign currency exchange rates.
UPS noted it continued its investment in global infrastructure and that it will open its newhub in Shanghai in the fourth quarter. This is the first hub constructed by a US carrier in Chinaand will link all of China via Shanghai to UPS’s international network with direct service to theAmericas, Europe and Asia.
The supply chain business increased revenues by 9% to $2.3 billion from $2.1 billion andimproved operating profits by more than 30% to $129 million from the previous year adjusted figureof $98 million. All units contributed to the revenue growth of 9%. The Forwarding andLogistics operations again demonstrated the momentum seen in the first half of the year, andcustomers responded well to the enhanced air freight portfolio unveiled in January, UPS said.
CFO Kurt Kuehn said: “We’ve taken steps to effectively manage our costs and enhance servicelevels in an environment that proved substantially worse than we initially anticipated, withsignificant slowing toward the end of the quarter. Our focus on service, revenue management, costreduction and our sound financial position will help us manage through these tough businessconditions,” Kuehn continued. “We’ve implemented a range of initiatives to ensure our networkoperation matches demand.”
The CFO also noted UPS reduced its 2008 capital expenditure budget by $200 million to $2.8billion and expects to reduce 2009 capital expenditures as well.
“Based on economic forecasts, we anticipate a challenging environment for a number ofquarters going forward,” he added. “We believe the US consumer will be very conservative withspending this year. But we still expect 2008 earnings per share should be toward the lower endof the $3.50-to-$3.70 range that we provided mid-year.”
