10-QPeriod: Q1 FY2004

UNITED PARCEL SERVICE INC Quarterly Report for Q1 Ended Mar 31, 2004

Filed May 10, 2004For Securities:UPS

Summary

United Parcel Service (UPS) reported strong financial results for the first quarter ended March 31, 2004, demonstrating significant year-over-year growth. Revenue increased by 11.3% to $8.9 billion, driven by robust performance across all segments, particularly international package and U.S. domestic package operations. Net income saw a substantial 24.2% increase to $759 million, translating to diluted earnings per share of $0.67, up from $0.54 in the prior year's first quarter. The company's operational efficiency improved, reflected in a higher consolidated operating margin of 13.6% compared to 11.8% in the same period last year. This improvement was supported by volume growth, effective revenue per piece management, and better network utilization. UPS also saw positive impacts from strategic decisions, including rate adjustments and a revised fuel surcharge policy for its domestic air products, which contributed to revenue growth. The company maintained a strong liquidity position, with net cash from operating activities increasing significantly.

Key Highlights

  • 1Revenue surged 11.3% to $8.9 billion year-over-year, driven by broad-based growth across all segments.
  • 2Net income increased 24.2% to $759 million, with diluted EPS rising to $0.67 from $0.54.
  • 3U.S. domestic package revenue grew 8.6%, fueled by a 5.0% increase in average daily volume and a 1.7% rise in revenue per piece.
  • 4International package revenue experienced a significant 24.3% jump, boosted by strong export volume growth and improved revenue per piece, partly due to currency favorable impacts.
  • 5Consolidated operating margin expanded to 13.6% from 11.8% in the prior year's quarter, indicating improved operational efficiency.
  • 6Net cash provided by operating activities rose to $1.823 billion, an increase from $1.475 billion in the prior year, partly due to a tax refund related to a resolved tax case.
  • 7The company announced a share repurchase program authorization of $1.0 billion and increased its quarterly cash dividend to $0.28 per share.

Frequently Asked Questions

Revenue growth was primarily driven by a 5.0% increase in U.S. domestic package volume and a strong 24.3% increase in international package revenue, fueled by a 6.4% increase in international volume and significant improvements in revenue per piece, partly aided by currency fluctuations. Rate increases and a revised fuel surcharge policy for domestic air products also contributed positively.

Profitability improved significantly. Net income increased by 24.2% to $759 million, leading to diluted earnings per share of $0.67, up from $0.54 in the first quarter of 2003. This improvement was supported by strong revenue growth, increased operating leverage, and better operational efficiency, resulting in an expanded consolidated operating margin to 13.6%.

UPS reported a healthy liquidity position. Net cash provided by operating activities increased substantially, and the company expects that funds from operations and existing borrowing programs will be adequate to meet its expected current and long-term needs, including anticipated capital expenditures of approximately $2.2 billion for 2004.

While UPS has resolved a significant tax issue related to Overseas Partners Ltd. with a favorable settlement and received a refund, there are ongoing IRS proposed adjustments for tax years 1985-1994, which the company believes it will prevail on, and these are not expected to have a material adverse effect. Additionally, there is a proposed global settlement for lawsuits related to excess value (EV) insurance, which UPS believes will not materially affect its financial condition.