July 22, 2008, 12:00 AM

Drop in U.S. package volume and rising fuel costs pinches Q2 results at UPS

Domestic package volume handled by UPS declined 1.3% year-over-year for the second quarter ended June 30, as a decline in imports and a 67% rise in fuel costs led to an 18% drop in operating profit, the company said today.

Domestic package volume handled by UPS, a major carrier for direct-to-consumer retailers, declined 1.3% year-over-year for the second quarter ended June 30, as a decline in imports and a 67% rise in fuel costs led to an 18% drop in operating profit to $1.45 billion from $1.77 billion, the company said today.

Average daily domestic next-day air shipments fell 6.1% year-over-year, as average daily ground package volume declined 0.7%, for a combined average daily decline of 1.3%.

Nonetheless, the company remained upbeat. “Even though economists do not predict a recovery until 2009, we anticipate that the second half of 2008 will generate modestly better results than the first half, assuming business conditions do not worsen,” said chief financial officer Kurt Kuehn.

Despite the declines in domestic package volume and in imports, total Q2 revenue inched up 0.6% to $13 billion from $12.19 billion a year ago. Aided by a 4.9% rate hike at the beginning of the year, domestic package revenue rose 1.7% to $7.71 billion from $7.58 billion. And a 10.2% increase in exports helped to boost international package revenue 18% to $2.95 billion from $2.5 billion.

To support international operations, UPS upgraded overseas facilities and services during the quarter. It completed network integration of its UK-based Tamworth ground package facility, its largest ground hub outside the U.S.; announced planned construction of an intra-Asia hub in Shenzhen, China; initiated five weekly flights to Nagoya, Japan; and concluded the buyout of a joint venture partner in Korea.

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