10-QPeriod: Q2 FY2003

UNITED PARCEL SERVICE INC Quarterly Report for Q2 Ended Jun 30, 2003

Filed August 14, 2003For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported its financial results for the second quarter and the first six months ended June 30, 2003. The company demonstrated solid revenue growth, driven primarily by its international package and non-package segments, while U.S. domestic package revenue saw a more moderate increase. Net income showed a healthy rise compared to the prior year, with diluted earnings per share also improving significantly. This performance reflects a strategic focus on expanding services beyond traditional package delivery and capitalizing on global market opportunities. Despite some operational cost pressures, UPS managed to grow its top and bottom lines, indicating resilience and effective execution of its business strategy. Key financial metrics highlight a robust increase in international package revenue, fueled by strong export volume and improved revenue per piece, further boosted by favorable currency movements. Non-package operations, including Supply Chain Solutions and other diversified services, also contributed significantly to revenue and operating profit growth. While U.S. domestic operations faced some margin compression due to increased operating expenses, the overall company performance remained strong. Management's outlook suggests continued investment in business growth and liquidity, supported by operational cash flows and established borrowing programs.

Key Highlights

  • 1Consolidated revenue increased by 7.1% to $8.23 billion for the quarter and 6.4% to $16.24 billion year-to-date, reflecting growth across all segments.
  • 2Net income for the quarter rose to $692 million ($0.61 per diluted share) from $611 million ($0.54 per diluted share) in the prior year, while year-to-date net income reached $1.30 billion ($1.15 per diluted share) from $1.10 billion ($0.97 per diluted share) in 2002.
  • 3International package revenue saw a substantial increase of 19.8% for the quarter and 21.6% year-to-date, driven by strong export volume growth and improved revenue per piece.
  • 4Non-package operations, including UPS Supply Chain Solutions, experienced robust revenue growth of 16.0% for the quarter and 13.7% year-to-date.
  • 5U.S. domestic package operating profit decreased by 7.5% for the quarter due to increased operating expenses, despite a 3.7% revenue increase.
  • 6The company generated $2.57 billion in net cash from operating activities for the first six months of 2003.
  • 7UPS sold its Mail Technologies business unit in the second quarter of 2003, resulting in a net income increase of $14 million or $0.01 per diluted share.

Frequently Asked Questions

The primary driver of revenue growth for UPS in the second quarter of 2003 was the strong performance of its international package segment, which saw a 19.8% increase in revenue, and its non-package segment, which grew revenue by 16.0%. This was supported by a more moderate 3.7% increase in U.S. domestic package revenue.

Profitability improved significantly. Net income for the second quarter of 2003 was $692 million, up from $611 million in the same period of 2002. Diluted earnings per share increased from $0.54 to $0.61 for the quarter.

The decrease in operating profit for U.S. domestic package operations was primarily due to an increase in operating expenses. While revenue per piece and volume saw modest increases, higher costs for compensation and benefits, purchased transportation, and depreciation and amortization impacted the segment's profitability.

UPS adopted the fair value measurement provisions of FASB Statement No. 123 for stock-based compensation effective January 1, 2003. Additionally, the company sold its Mail Technologies business unit, which contributed a $14 million after-tax gain to net income. The company also finalized a settlement with the IRS regarding outstanding tax issues related to EV package insurance.