U.S. Domestic Profit Improves 31%; Supply Chain and Freight Profit Sets New High
UPS (NYSE: UPS) today announced adjusted diluted earnings per share of $1.05 for the second quarter of 2011, a 25% improvement over the $0.84 for the prior-year period. Total revenue increased 8.1% to $13.2 billion.
On an adjusted basis, U.S. Domestic operating profit increased 31%, while Supply Chain and Freight generated record operating profit of $187 million.
On a reported basis, diluted earnings per share for the quarter were $1.07, a 27% increase over the same quarter last year. During the period, UPS recorded two real estate transactions that resulted in a net after-tax gain of $20 million.
"UPS's results reflect the continued execution of our strategy and the ability to grow earnings in an uneven economic environment," said Scott Davis, UPS chairman and CEO. "Customers are recognizing the value of the integrated solutions that leverage UPS capabilities around the globe and across the entire supply chain."
Adjusted
Consolidated Results 2Q 2011 2Q 2011 2Q 2010
Revenue $13.19 B $12.20 B
Operating profit $1.70 B $1.67 B $1.40 B
Operating margin 12.9 % 12.6 % 11.5 %
Average volume per day 14.9 M 14.8 M
Diluted earnings per share $1.07 $1.05 $0.84
In the second quarter, UPS delivered 957 million packages generating $13.2 billion in revenue. Adjusted operating margin expanded by 110 basis points to 12.6%, while reported operating margin improved 140 basis points to 12.9%.
Cash Position
For the six months ending June 30, UPS generated $2.3 billion in free cash flow even after making accelerated pension contributions of $1.2 billion. Capital expenditures for the period were $951 million, as the company has added four B-767 and two B-747-400 aircraft to its fleet.
In addition, year-to-date, UPS paid dividends of more than $1 billion, up 10.6% per share. The company also repurchased 14.4 million shares for approximately $1.1 billion.
Adjusted
U.S. Domestic Package 2Q 2011 2Q 2011 2Q 2010
Revenue $7.74 B $7.27 B
Operating profit $966 M $981 M $748 M
Operating margin 12.5 % 12.7 % 10.3 %
Average volume per day 12.63 M 12.62 M
Operating profit improved 31% on an adjusted basis with revenue growth of 6.4%. Volume growth was flat as a result of the slow U.S. economy. Adjusted operating margin expanded 240 basis points to 12.7% due to higher yields and network efficiencies.
On a reported basis, including the negative impact of a $15 million real estate transaction, operating profit increased 29% and operating margin expanded by 220 basis points to 12.5%.
Last month, UPS received the No. 1 ranking in the express delivery industry as reported by the University of Michigan's American Customer Satisfaction Index. This survey measures key attributes such as consumer expectations, quality and value of services as well as consumers' intention to re-purchase.
International Package 2Q 2011 2Q 2010
Revenue $3.14 B $2.77 B
Operating profit $497 M $521 M
Operating margin 15.8 % 18.8 %
Average volume per day 2.32 M 2.18 M
Revenue for the segment improved 13.3% driven by an export volume increase of 8.1%, with Europe and China continuing their strong growth trends. Revenue per piece climbed 6.3% with currency, fuel surcharges, rate increases and product mix all contributing.
Currency translation and hedging programs negatively impacted operating profit by more than $50 million.
Continuing the expansion of its Asian air network, UPS launched a new flight this week to serve western China. The flight originates in Cologne, Germany, and makes a stop in Warsaw before transiting to Chengdu, China, on the way to Shanghai. With the addition of the Chengdu flight, UPS now connects Europe and Asia with 24 flights per week, providing more next day options, guaranteed, than any logistics carrier.
Adjusted
Supply Chain and Freight 2Q 2011 2Q 2011 2Q 2010
Revenue $2.32 B $2.16 B
Operating profit $235 M $187 M $133 M
Operating margin 10.2 % 8.1 % 6.1 %
Operating profit climbed 41% on an adjusted basis to $187 million with revenue growth of 7%. The adjusted operating margin for the segment increased 200 basis points to 8.1%. This was driven by significant improvements in the Forwarding business as a result of revenue management initiatives and favorable buy rates.
On a reported basis, including the positive impact of a $48 million real estate transaction, operating profit increased 77% and operating margin grew 410 basis points to 10.2%.
UPS Freight revenue increased 19% over the prior-year period, driving improved profitability. The business saw strong increases in LTL revenue per hundredweight and gross weight hauled, up 11.2% and 6.2%, respectively.
In June, UPS and Merck announced a significant expansion of their North American relationship with a global distribution and logistics agreement. This agreement includes aspects of Merck's global supply chain around the world. UPS will provide various services including distribution, warehousing and multi-modal transportation to Merck across Europe, Asia and Latin America.
Outlook
"Despite softening economic conditions, UPS delivered its highest ever second quarter earnings per share," said Kurt Kuehn, UPS's chief financial officer. "These results were driven by the quality of revenue in U.S. Domestic, superior export volume growth in International and record Supply Chain & Freight results.
"We remain confident in our ability to execute and surpass prior peak EPS this year," Kuehn continued. "Although economic conditions will impact our performance, we reiterate guidance for 2011 adjusted diluted earnings per share to a range of $4.15-to-$4.40."
# # #
EDITOR'S NOTE:
UPS Chairman and CEO Scott Davis and CFO Kurt Kuehn will discuss second quarter results with investors and analysts during a conference call at 8:30 a.m. EDT today. That call is open to listeners through a live Webcast. To access the call, go to www.investors.ups.com and click on "Earnings Webcast."
UPS routinely posts investor announcements on its web site - www.investors.ups.com - and encourages those interested in the company to check there frequently.
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, pre-tax income, net income and earnings per share. The equivalent measures determined in accordance with GAAP are also referred to as "reported" or "unadjusted". 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 plans.
In the second quarter of 2011, we recorded certain real estate transactions, including a $15 million pre-tax loss for U.S. Domestic Package segment and a $48 million pre-tax gain in the Supply Chain & Freight segment. In the first quarter of 2010, we recorded a $98 million pre-tax restructuring charge in our U.S. Domestic Package operations related to the reorganization of our domestic management structure. We also incurred a $38 million pre-tax loss on the sale of a specialized transportation business in Germany in our Supply Chain & Freight segment. Additionally, we recorded a $76 million charge to income tax expense, resulting from a change in the filing status of a German subsidiary. We presented second quarter and year-to-date 2011 and 2010 operating profit, operating margin, pre-tax income, 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. The underlying matters that produced these charges were unique, and we do not believe they are reflective of the types of charges that will affect future results.
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 preceding 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.
UPS (NYSE: UPS) today announced adjusted diluted earnings per share of $1.05 for the second quarter of 2011, a 25% improvement over the $0.84 for the prior-year period. Total revenue increased 8.1% to $13.2 billion.
On an adjusted basis, U.S. Domestic operating profit increased 31%, while Supply Chain and Freight generated record operating profit of $187 million.
On a reported basis, diluted earnings per share for the quarter were $1.07, a 27% increase over the same quarter last year. During the period, UPS recorded two real estate transactions that resulted in a net after-tax gain of $20 million.
"UPS's results reflect the continued execution of our strategy and the ability to grow earnings in an uneven economic environment," said Scott Davis, UPS chairman and CEO. "Customers are recognizing the value of the integrated solutions that leverage UPS capabilities around the globe and across the entire supply chain."
Adjusted
Consolidated Results 2Q 2011 2Q 2011 2Q 2010
Revenue $13.19 B $12.20 B
Operating profit $1.70 B $1.67 B $1.40 B
Operating margin 12.9 % 12.6 % 11.5 %
Average volume per day 14.9 M 14.8 M
Diluted earnings per share $1.07 $1.05 $0.84
In the second quarter, UPS delivered 957 million packages generating $13.2 billion in revenue. Adjusted operating margin expanded by 110 basis points to 12.6%, while reported operating margin improved 140 basis points to 12.9%.
Cash Position
For the six months ending June 30, UPS generated $2.3 billion in free cash flow even after making accelerated pension contributions of $1.2 billion. Capital expenditures for the period were $951 million, as the company has added four B-767 and two B-747-400 aircraft to its fleet.
In addition, year-to-date, UPS paid dividends of more than $1 billion, up 10.6% per share. The company also repurchased 14.4 million shares for approximately $1.1 billion.
Adjusted
U.S. Domestic Package 2Q 2011 2Q 2011 2Q 2010
Revenue $7.74 B $7.27 B
Operating profit $966 M $981 M $748 M
Operating margin 12.5 % 12.7 % 10.3 %
Average volume per day 12.63 M 12.62 M
Operating profit improved 31% on an adjusted basis with revenue growth of 6.4%. Volume growth was flat as a result of the slow U.S. economy. Adjusted operating margin expanded 240 basis points to 12.7% due to higher yields and network efficiencies.
On a reported basis, including the negative impact of a $15 million real estate transaction, operating profit increased 29% and operating margin expanded by 220 basis points to 12.5%.
Last month, UPS received the No. 1 ranking in the express delivery industry as reported by the University of Michigan's American Customer Satisfaction Index. This survey measures key attributes such as consumer expectations, quality and value of services as well as consumers' intention to re-purchase.
International Package 2Q 2011 2Q 2010
Revenue $3.14 B $2.77 B
Operating profit $497 M $521 M
Operating margin 15.8 % 18.8 %
Average volume per day 2.32 M 2.18 M
Revenue for the segment improved 13.3% driven by an export volume increase of 8.1%, with Europe and China continuing their strong growth trends. Revenue per piece climbed 6.3% with currency, fuel surcharges, rate increases and product mix all contributing.
Currency translation and hedging programs negatively impacted operating profit by more than $50 million.
Continuing the expansion of its Asian air network, UPS launched a new flight this week to serve western China. The flight originates in Cologne, Germany, and makes a stop in Warsaw before transiting to Chengdu, China, on the way to Shanghai. With the addition of the Chengdu flight, UPS now connects Europe and Asia with 24 flights per week, providing more next day options, guaranteed, than any logistics carrier.
Adjusted
Supply Chain and Freight 2Q 2011 2Q 2011 2Q 2010
Revenue $2.32 B $2.16 B
Operating profit $235 M $187 M $133 M
Operating margin 10.2 % 8.1 % 6.1 %
Operating profit climbed 41% on an adjusted basis to $187 million with revenue growth of 7%. The adjusted operating margin for the segment increased 200 basis points to 8.1%. This was driven by significant improvements in the Forwarding business as a result of revenue management initiatives and favorable buy rates.
On a reported basis, including the positive impact of a $48 million real estate transaction, operating profit increased 77% and operating margin grew 410 basis points to 10.2%.
UPS Freight revenue increased 19% over the prior-year period, driving improved profitability. The business saw strong increases in LTL revenue per hundredweight and gross weight hauled, up 11.2% and 6.2%, respectively.
In June, UPS and Merck announced a significant expansion of their North American relationship with a global distribution and logistics agreement. This agreement includes aspects of Merck's global supply chain around the world. UPS will provide various services including distribution, warehousing and multi-modal transportation to Merck across Europe, Asia and Latin America.
Outlook
"Despite softening economic conditions, UPS delivered its highest ever second quarter earnings per share," said Kurt Kuehn, UPS's chief financial officer. "These results were driven by the quality of revenue in U.S. Domestic, superior export volume growth in International and record Supply Chain & Freight results.
"We remain confident in our ability to execute and surpass prior peak EPS this year," Kuehn continued. "Although economic conditions will impact our performance, we reiterate guidance for 2011 adjusted diluted earnings per share to a range of $4.15-to-$4.40."
# # #
EDITOR'S NOTE:
UPS Chairman and CEO Scott Davis and CFO Kurt Kuehn will discuss second quarter results with investors and analysts during a conference call at 8:30 a.m. EDT today. That call is open to listeners through a live Webcast. To access the call, go to www.investors.ups.com and click on "Earnings Webcast."
UPS routinely posts investor announcements on its web site - www.investors.ups.com - and encourages those interested in the company to check there frequently.
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, pre-tax income, net income and earnings per share. The equivalent measures determined in accordance with GAAP are also referred to as "reported" or "unadjusted". 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 plans.
In the second quarter of 2011, we recorded certain real estate transactions, including a $15 million pre-tax loss for U.S. Domestic Package segment and a $48 million pre-tax gain in the Supply Chain & Freight segment. In the first quarter of 2010, we recorded a $98 million pre-tax restructuring charge in our U.S. Domestic Package operations related to the reorganization of our domestic management structure. We also incurred a $38 million pre-tax loss on the sale of a specialized transportation business in Germany in our Supply Chain & Freight segment. Additionally, we recorded a $76 million charge to income tax expense, resulting from a change in the filing status of a German subsidiary. We presented second quarter and year-to-date 2011 and 2010 operating profit, operating margin, pre-tax income, 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. The underlying matters that produced these charges were unique, and we do not believe they are reflective of the types of charges that will affect future results.
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 preceding 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.
