10-KPeriod: FY2004

UNITED PARCEL SERVICE INC Annual Report, Year Ended Dec 31, 2004

Filed March 14, 2005For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported strong financial performance for the fiscal year ending December 31, 2004. The company experienced significant revenue growth, driven by a robust increase in both U.S. domestic and international package volumes, alongside a growing contribution from its non-package business segments, including Supply Chain Solutions. This growth was supported by strategic investments in its global network, technology, and an expanding service portfolio, positioning UPS to capitalize on global trade expansion and the rise of e-commerce. The company's financial health is robust, with healthy operating profit margins and strong cash flow from operations. UPS also demonstrated a commitment to shareholder returns through increased dividends and a significant share repurchase program. While facing ongoing competition and regulatory oversight, UPS's competitive strengths, including its extensive global reach, advanced technology, and strong brand equity, are expected to sustain its market leadership and drive future growth.

Key Highlights

  • 1Total revenue increased by 9.2% to $36.58 billion in 2004.
  • 2U.S. domestic package revenue grew by 6.3%, driven by a 3.3% increase in average daily package volume and a 2.1% rise in revenue per piece.
  • 3International package revenue saw substantial growth of 21.6%, reflecting strong export volume growth and improved revenue per piece, with Asia-Pacific leading the expansion.
  • 4Non-package operations, including Supply Chain Solutions, also showed strong revenue growth of 10.6%, indicating diversification and expansion beyond core package delivery.
  • 5Operating profit increased by 12.2% to $4.99 billion, with international package operations showing a significant 58.1% profit increase.
  • 6Diluted earnings per share rose to $2.93 in 2004 from $2.55 in 2003, a 15% increase.
  • 7The company authorized an additional $2.0 billion for share repurchases, demonstrating confidence and commitment to returning capital to shareholders.

Frequently Asked Questions

UPS's revenue growth in 2004 was primarily driven by a strong increase in average daily package volume across both its U.S. domestic and international segments. Specifically, U.S. domestic ground volume increased by 4.0%, and export volume in international markets saw double-digit growth, particularly in the Asia-Pacific region. The non-package segment, especially Supply Chain Solutions, also contributed significantly to the revenue increase.

Consolidated operating expenses increased by 8.8% in 2004. While compensation and benefits, and other operating expenses like fuel and purchased transportation increased, the company's revenue growth outpaced expense growth. This led to an overall increase in operating profit by 12.2% to $4.99 billion, and an improvement in consolidated operating margin to 13.6% from 13.3% in the prior year. The international segment, in particular, saw a substantial improvement in operating profit due to strong volume and revenue per piece growth.

UPS's strategy for international expansion focuses on leveraging its existing global infrastructure and broad product portfolio to grow high-margin premium services. Key areas of focus include Europe and Asia, with specific emphasis on emerging markets like China and India. The company is investing in infrastructure and technology, such as expanding its European air hub in Cologne, Germany, and improving its intra-Asia hub in the Philippines. They are also utilizing services like UPS Trade Direct to streamline cross-border movements and enhance customer value.

UPS is exposed to fuel price volatility, particularly for jet-A, diesel, and gasoline. To manage this risk, the company utilizes a combination of derivative instruments such as options, swaps, and futures contracts to hedge forecasted fuel consumption. Additionally, they adjust their pricing strategies, including the implementation of indexed fuel surcharges on domestic air products based on the U.S. Energy Department's Gulf Coast spot price for jet fuel. In January 2005, they planned to implement a maximum cap of 9.5% on domestic and international air services fuel surcharges.