UPS, with headquarters in Atlanta, Ga., has reported third quarter results that included a solid gain in revenue, a rise in profits, strong international growth and continued improvement
in its supply chain business.
For the quarter ended Sept. 30, 2002, revenue totaled $7.75 billion, up 4.8% from the $7.4 billion reported during the prior-year period. Consolidated operating profit improved 0.7% to $950 million. Net income increased to $578 million compared to the prior year's $568 million. Earnings per diluted share increased 2% to $0.51 -- within the company's previous guidance -- versus $0.50 recorded during the period in 2001.
"We have managed our business very well in the face of tough conditions," said Scott Davis, UPS's chief financial officer. "In the United States, our service levels are at an all-time high and the company remains well positioned for an economic rebound. And we are very pleased by the gains in our international business."
During the third quarter, international operations showed the most resilience with operating profit jumping to $65 million from a loss of $4 million during the period in 2001, on a 17% increase in revenue to $1.18 billion. Export volume continued to outperform market growth, posting a 9.9% increase in average daily deliveries with 15% growth in Europe and Asia. The segment continued to benefit from April's opening of an intra-Asia air hub in the Philippines, which improved service levels within Asia and to and from Europe.
In the U.S. domestic segment, revenue totaled $5.89 billion, up 1.4% compared to $5.81 billion a year ago. Operating profit declined 9.6% to $809 million from the $895 million reported in 2001. Average daily package volume in the United States declined 2.1% for the quarter to 11.7 million, as the company worked to regain business lost to other carriers before its successful negotiation of a new labor contract with the Teamsters.
In the non-package segment, which includes Supply Chain Solutions, revenue increased 17.4% to $681 million while operating profit totaled $76 million, up 46.2% compared to the $52 million reported in 2001. During the quarter, UPS signed a number of new customers including Nikon Inc., Scovill Fasteners Inc. and Oneida, attracted by the company's ability to integrate such services as logistics, freight forwarding, customs clearance, financing and package delivery. A number of existing customers such as Alcatel and Dell also expanded their business with the Supply Chain Solutions group.
For the nine months ended Sept. 30, revenue totaled $23 billion, up 3.1% compared to the $22.3 billion reported during the period in 2001. Operating profit and net income remained flat at $2.9 billion and $1.75 billion, respectively. Adjusted to remove non-recurring expenses recorded in 2001, net income fell slightly from $1.78 billion in 2001 to $1.75 billion. Earnings per diluted share totaled $1.55 for the nine-month period, matching the adjusted total recorded in 2001.
During the nine-month period, average daily package volume worldwide totaled 13 million, down 1.8% compared to the 13.2 million per day recorded during the prior year.
In reviewing the company's results, Davis said UPS had succeeded in winning back just over half of the U.S. domestic volume diverted in June and July when contract talks were underway.
"We are very encouraged by the amount of new business bid activity currently in the pipeline, now that we are no longer fighting the headwinds of labor uncertainty," Davis added. "We are maintaining a very patient and disciplined approach to winning back diverted volume as well as new volume that was unavailable to us while labor negotiations were in progress. The economy, however, is the bigger issue since it is not showing signs of recovery. Consumer confidence will be key to the success of this year's fourth quarter."
Davis said the company was moving on other fronts to prepare for future growth. UPS is accelerating its integration activities within the new Supply Chain Solutions organization, synchronizing the capabilities of subsidiaries acquired over the past three years. That work currently is focused on moving the units to a common information technology platform, integrating the various sales forces, and establishing a regional approach to providing supply chain services, he said.
Looking at the short term, Davis said the company expects earnings in the fourth quarter to range between $0.55 to $0.60 per diluted share. Consumer spending, the economy and success in regaining package volume all will impact the quarter's results. While the company expects its volume growth momentum to improve as 2003 unfolds, volume in the current quarter likely will lag 2001 by about 1%. Capital expenditures for the year will be under $1.9 billion, and in 2003 should total about $2 billion.
For 2003, assuming an economic recovery, UPS should be able to meet or exceed its historical earnings growth rate of 13%, Davis continued. The second half of the year should be stronger than the first, because of the likely pattern of the economic recovery and easier comparisons later in 2003 as the company cycles past the impact of the 2002 labor talks on the U.S. package business.