Paced by its growing international package operation, UPS (NYSE:UPS), Atlanta, Ga., has reported a strong gain in net income for the first quarter of 2005.
For the three months ended March 31, net income totaled $882 million, a gain of 16.2% compared to the $759 million reported for the period in 2004. Earnings per diluted share were $0.78, up 16.4% from the $0.67 reported in the prior year.
Consolidated revenue for the three months ended March 31, 2005, rose 10.8% to $9.89 billion, reflecting in part the addition of revenue from the recently acquired Menlo Worldwide Forwarding. International package revenue climbed 13% while U.S. package revenue rose 2.8%.
Operating profit rose 13.8% to $1.39 billion compared to $1.22 billion for the prior-year period. International operating profit jumped 25.6% to $348 million, while U.S. domestic operating profit increased almost 13% to $1.03 billion.
Operating profit for the supply chain solutions segment was reduced by integration costs from the December acquisition of Menlo Worldwide Forwarding. The former Menlo unit now is a key part of an aggressive push by UPS Supply Chain Solutions into the time-definite heavy air freight business.
UPS also announced a change to its management bonus program, moving from a fixed profit-sharing plan to a performance-based plan. This change had a positive impact on compensation expense for the quarter of $0.045 per diluted share, and will have comparable benefits for the rest of the year. As a result, the company raised its guidance for 2005 full-year earnings growth to the range of 16-to-20% over the adjusted $2.90 reported for 2004. (The 2004 diluted EPS on a GAAP basis was $2.93.) Previous guidance was 13-to-17%.
Consolidated worldwide package volume for the first quarter rose by 3 million pieces to 885 million, while average daily volume increased by 38,000 packages per day to 13.82 million. Export volume was up 9.3%, while U.S. domestic volume was essentially flat at an average 12.5 million per day.
"We had a great start to the year. The first quarter set the pace for UPS to generate earnings in 2005 at the higher end of our historical range,” said Scott Davis, UPS’s CFO. “We grew our international operating profit by more than 25% and we did a very good job of managing our costs. Our cost initiatives are taking hold and we are benefiting from the deployment of package flow technology in the U.S. operation. There is strong momentum throughout all three business units.”
Highlights by segment for the first quarter included:
* International package revenue increased 13% to $1.84 billion. Operating profit climbed 25.6% to $348 million. Asia export volume increased 36% with export volume doubling out of China. Operating margin increased 190 basis points to 18.9%.
* U.S. domestic package revenue grew 2.8% during the period to $6.8 billion. Operating profit rose 12.7% to $1.03 billion and operating margin was 15.1%. Average daily volume in the U.S. grew 0.1% for the quarter. Yields remained strong, with an increase in revenue per piece of 2.6% for all U.S. domestic products.
* Revenue for the supply chain solutions segment increased 86% to $1.23 billion with the addition of Menlo Worldwide Forwarding. Freight services and logistics accounted for $1.12 billion of that total. Revenue growth for the segment was on track and hit its target for the quarter. Profitability was reduced by the integration of Menlo.
"We are confident we've laid the foundation to accelerate volume growth in the U.S. going forward,” added Davis. "Our efforts to better sell to mid-sized customers are gaining traction and we made good strides in connecting more customers to UPS through electronic shipping systems."
Davis said the company expects solid growth in 2005. The international segment should maintain its exceptional performance with strong export volume growth. U.S. domestic volume growth should be 2-to-3% for the year, and the Menlo acquisition is expected to be slightly accretive to earnings for the year.
For the second quarter, UPS is projecting diluted earnings per share in a range of $0.82 to $0.87 compared to the $0.72 reported during the prior-year period. The company anticipates improving volume trends in its U.S. domestic business, with 2% growth expected in the second quarter.
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. UPS serves more than 200 countries and territories worldwide. For more information, go to www.UPS.com.

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