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Press Release
BRUSSELS, April 25, 2007 – UPS (NYSE:UPS) today reported a 7.9% increase in adjusted diluted earnings per share to $0.96 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 programme completed during the quarter. Including these charges, diluted earnings per share declined 12.4% to $0.78 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 |
$11.9 B |
|
$11.5 B |
| Operating profit |
$1.36 B |
$1.65 B |
$1.56 B |
| Operating margin |
11.4 % |
13.8 % |
13.5 % |
| Average volume per day |
15.13 M |
|
15.06 M |
| Diluted earnings per share |
$0.78 |
$0.96 |
$0.89 |
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 $54 million, an improvement of $79 million.
During the period, UPS took an impairment charge of $221 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 realised a charge to expense of $68 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 $184 million, which reduced diluted earnings per share by $0.18.
The aircraft impairment charge impacted the U.S. Domestic Package segment by $159 million and the International Package segment by $62 million. The separation charge impacted the U.S. Domestic Package segment by $53 million, the International Package segment by $7 million and the Supply Chain and Freight segment by $8 million.
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Cash Position
UPS ended the quarter with $2.4 billion in cash and marketable securities. UPS also:
- Generated $1.9 billion in free cash flow.
- Purchased 8.9 million shares.
- Paid dividends totaling $828 million. The dividend was increased 11% during the quarter.
- Invested $675 million in capital expenditures.
| U. S. Domestic Packages |
1Q 2007 |
As adjusted |
1Q 2006 |
| Revenue |
$7.55 B |
|
$7.46 B |
| Operating profit |
$941 M |
$1.15 B |
$1.19 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.
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| International Package |
1Q 2007 |
As adjusted |
1Q 2006 |
| Revenue |
$2.39 B |
|
$2.16 B |
| Operating profit |
$371 M |
$ 440 M |
$395 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 |
$1.97 B |
|
$1.90 B |
| Operating profit |
$ 46 M |
$54 M |
($25 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.
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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 $1.00 to $1.05 per diluted share compared to $0.97 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.
UPS, which celebrates its 100th anniversary in 2007, is the world’s largest package delivery company and a global leader in supply chain services, offering an extensive range of options for synchronising the movement of goods, information and funds. Headquartered in Atlanta, USA, UPS serves more than 200 countries and territories worldwide. UPS’s stock trades on the New York Stock Exchange (UPS) and the company can be found on the Web at www.UPS.com.
# # # Except for historical information contained herein, the statements made in this release constitute forward-looking statements within the meaning of Section 27A of the US Securities Act of 1933 and Section 21E of the US Securities Exchange Act of 1934. Such forward-looking statements, including statements regarding the intent, belief or current expectations of UPS and its management regarding the company's strategic directions, prospects and future results, involve certain risks and uncertainties. Certain factors may cause actual results to differ materially from those contained in the forward-looking statements, including economic and other conditions in the markets in which we operate, governmental regulations, our competitive environment, strikes, work stoppages and slowdowns, increases in aviation and motor fuel prices, cyclical and seasonal fluctuations in our operating results, and other risks discussed in the company's Form 10-K and other filings with the US Securities and Exchange Commission, which discussions are incorporated herein by reference.
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