International Profit Jumps Almost 50%; Board Increases Share Repurchase Authorization to $2 Billion
ATLANTA, Oct. 21, 2004 - UPS (NYSE:UPS) today reported solid third quarter growth with revenues rising 7.7% and net income increasing 20.4%.
Total worldwide average daily volume increased by 445,000 packages per day to 13.7 million, a 3.4% increase. Total international export package volume grew 13.2%, while UPS Supply Chain Solutions posted strong growth with revenue up 10.1%.
"The reach and reliability of our global package delivery network is unmatched and we`re attracting new business as a result," said Scott Davis, UPS`s chief financial officer. "We`re seeing double-digit export growth in every region of the world with strong profit increases to match."
The CFO also said UPS continues to generate substantial positive cash flow and the Board of Directors has increased the company`s share repurchase authorization to $2 billion.
For the three months ended Sept. 30, consolidated revenue totaled $8.95 billion, up 7.7% compared to the $8.31 billion reported during the prior-year period. Consolidated operating profit rose 9.7% to $1.26 billion. Net income for the quarter was $890 million compared to $739 million reported for the same period in 2003.
The results for the third quarter in 2003 included a $24 million gain on the sale of UPS Aviation Technologies as well as a $22 million tax benefit due to a favorable tax ruling. The most recent quarter includes a $99 million reduction to income taxes due to the resolution of various tax matters.
Excluding these items, third quarter operating profit increased $135 million to $1.26 billion, a gain of 12%. Adjusted net income totaled $791 million this year compared to $702 million in 2003, up 12.7%.
Earnings per diluted share were $0.78 compared to $0.65 the prior year. On an adjusted basis, earnings per diluted share totaled $0.70 per share, up 12.9% compared to the prior year`s $0.62. The adjusted $0.70 per diluted share is within UPS`s guidance of $0.69 to $0.72.
For the nine months ended Sept. 30, consolidated revenues totaled $26.74 billion, an increase of 8.9% compared to the prior-year period. Operating profit totaled $3.79 billion, a gain of 19.3% compared to the period in 2003. Net income increased to $2.47 billion, a gain of 20.8% compared to the period in 2003.
Third quarter highlights by company segments included:
ƒÞ International package revenue increased 21.6% to $1.67 billion on a 13.2% gain in export package volume and a 4.1% increase in international domestic package volume. Asia export volume increased 29% as export volume out of China more than doubled. U.S. export volume led the industry with its fourth consecutive quarter of double-digit growth. Operating profit jumped 49% to $262 million. International operating margin increased 290 basis points to 15.7%.
ƒÞ U.S. package revenue increased 4.4% to $6.49 billion while operating profit climbed 3.9% to $857 million. Both were impacted by a difficult September during which multiple hurricanes and tropical storms disrupted commerce across the U.S. and UPS operations in the Southeast and East. Average daily ground volume in the U.S. grew 4.5% for the quarter. Total Next Day Air(r) volume was down in the quarter due to the large amount of letters associated with mortgage refinancing activity last year. Excluding letters, Next Day package volume increased in the quarter. Average revenue per piece rose 1.5% for all U.S. products.
ƒÞ Revenue for the non-package segment climbed 9.5% to $792 million. Excluding last year`s gain on the sale of UPS Aviation Technologies, operating profit increased 13.9% to $139 million. Revenue for UPS Supply Chain Solutions, the largest unit in the non-package segment, increased 10.1% to $591 million. The UPS SCS unit, with the pending acquisition of Menlo Worldwide Forwarding, will add guaranteed heavy air freight to its portfolio across the globe.
In addition to this month`s agreement to acquire Menlo Worldwide Forwarding, several other developments occurred during the quarter that will be instrumental to continued growth. Earlier in the period, UPS added air capabilities to its Trade Direct SM line of services, helping customers eliminate the need for warehousing after importing.
Last month, UPS added three additional flights to its "around-the-world" network to accommodate expanding package flows between Asia and Europe. And just this past Monday, the U.S. Transportation Department finalized its earlier award of aviation rights allowing UPS to triple its direct access to the fast-growing China market.
"We will keep building our capabilities as more customers turn to UPS to help them effectively manage their transportation and supply chain needs," Davis added.
For the fourth quarter, Davis said the company is expecting a solid holiday shipping season in the United States and stellar growth outside the U.S. UPS is projecting fourth quarter diluted earnings per share to increase over last year`s adjusted $0.70 to a range of $0.83 to $0.87. Davis added UPS expects earnings per share in 2005 to grow between 13-to-17%.
UPS is the world`s largest package delivery company and a global leader in supply chain services, offering an extensive range of options for synchronizing the movement of goods, information and funds. Headquartered in Atlanta, Ga., 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 UPS.com.
EDITOR`S NOTE: UPS CFO Scott Davis will discuss third quarter results with investors and analysts during a conference call later today at 10:00 a.m. EDT. That conference call is open to listeners through a live Webcast. To access the call, go to www.shareholder.com/UPS and click on "Earnings Webcast."
We supplement the reporting of our financial information determined under generally accepted accounting principles (GAAP) with certain non-GAAP financial measures, including, as applicable, "as adjusted" operating profit, operating margin, net income and earnings per share. We believe that these adjusted measures provide meaningful information to assist investors and analysts in understanding our financial results and assessing our prospects for future performance. We believe these adjusted financial measures are important indicators of our recurring operations because they exclude items that may not be indicative of or are unrelated to our core operating results, and provide a better baseline for analyzing trends in our underlying businesses. Furthermore, we use these adjusted financial measures to determine awards for our management personnel under our incentive compensation plan.
In the third quarter of 2004, we recorded a $99 million reduction in income tax expense due to the resolution of various tax matters. In the third quarter of 2003, we recognized a $22 million credit to income tax expense due to a favorable court ruling on the treatment of jet engine maintenance costs. Also in the third quarter of 2003, we recognized a $24 million pre-tax gain ($15 million after-tax) upon the sale of our former Aviation Technologies unit. In the second quarter of 2003, we recorded a $24 million pre-tax loss and a $38 million tax benefit on the sale of our Mail Technologies business. In the first quarter of 2003, we incurred a $58 million pre-tax impairment charge related to the Company`s investment in S&P; 500 equity portfolios and benefited from a $55 million reduction to income tax expense due to the resolution of various tax issues with the Internal Revenue Service. We presented operating profit, net income and earnings per share excluding the impact of these items as we believe these adjusted measures better enable shareowners to focus on period-over-period operating performance. We believe it is useful to present operating profit, net income and earnings per share excluding the impact of the sales of Aviation Technologies and Mail Technologies as these sales have minimal implications on future financial performance. We believe it is useful to present net income and earnings per share excluding the impact of the impairment charge because the Company has been significantly reducing the size of its equity portfolio investments and such investments are not a core business of the Company. We also believe it is useful to present net income and earnings per share excluding the impact of the resolution of the tax contingencies because the underlying matters that produced the tax benefits were unique and, as resolved, have no bearing on future anticipated tax expense.
Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies` non-GAAP financial measures having the same or similar names. These adjusted financial measures should not be considered in isolation or as a substitute for GAAP operating profit, operating margin, net income and earnings per share, the most directly comparable GAAP financial measures. These non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of our business. We strongly encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.
Except for historical information contained herein, the statements made in this release constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the 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 Securities and Exchange Commission, which discussions are incorporated herein by reference.
Norman Black, Public Relations
Teresa Finley, Investor Relations