10-QPeriod: Q1 FY2001

UNITED PARCEL SERVICE INC Quarterly Report for Q1 Ended Mar 31, 2001

Filed May 15, 2001For Securities:UPS

Summary

United Parcel Service (UPS) reported its first-quarter 2001 financial results, showing a decrease in net income and earnings per share compared to the same period in 2000. Revenue saw a modest increase of 4.0%, primarily driven by growth in international package volume and the non-package segment, particularly UPS Logistics Group. However, operating expenses rose by 6.7%, outpacing revenue growth and leading to a decrease in operating profit and a compression of operating margins. This was exacerbated by a significant drop in investment income compared to the prior year, which included one-time gains. Despite the overall decline in profitability, UPS continued to invest in its business, as evidenced by increased capital expenditures. The company also highlighted several strategic acquisitions in progress, including Mail Boxes Etc., Fritz Companies, and First International Bancorp, aimed at expanding its service offerings and market reach. Investors should note the ongoing tax dispute with the IRS, which remains a significant contingent liability, and a number of pending lawsuits that, while believed to be without merit, represent potential future risks.

Key Highlights

  • 1Revenue increased by 4.0% to $7.51 billion, driven by international package and non-package segment growth.
  • 2Net income decreased by 31.6% to $556 million, and diluted EPS fell to $0.48 from $0.67 in the prior year.
  • 3Operating expenses increased by 6.7%, outpacing revenue growth and reducing operating profit by 11.5% to $944 million.
  • 4The company announced significant strategic acquisitions in progress: Mail Boxes Etc., Fritz Companies, and First International Bancorp, to expand service offerings.
  • 5Cash and cash equivalents increased to $1.318 billion from $879 million at the end of 2000, indicating strong operational cash flow.
  • 6UPS is actively managing market risks through derivative financial instruments and has updated its accounting for these instruments under FAS 133.
  • 7The company continues to address a significant tax dispute with the IRS and faces multiple lawsuits, though management believes these will not materially impact the company's financial position.

Frequently Asked Questions

Revenue growth was primarily driven by the international package segment, which saw a 7.4% increase, and the non-package segment, notably UPS Logistics Group, which grew by 22.2%.

Net income and EPS decreased due to a combination of factors, including a significant increase in operating expenses (6.7% rise) that outpaced revenue growth, and a substantial decrease in investment income compared to the prior year, which included one-time gains from investments and asset sales.

UPS is pursuing strategic growth through several planned acquisitions: Mail Boxes Etc. to expand its retail presence, Fritz Companies to enhance its freight forwarding and logistics capabilities, and First International Bancorp to bolster its financial services arm, UPS Capital Corporation.

The company is appealing a U.S. Tax Court decision related to the income of Overseas Partners Ltd. The potential after-tax exposure for tax years 1984 through 1999 is estimated to be as high as $2.353 billion. While UPS believes aspects of the decision are incorrect, the ultimate resolution and its impact are uncertain and it remains a significant contingent liability.