10-QPeriod: Q2 FY2004

UNITED PARCEL SERVICE INC Quarterly Report for Q2 Ended Jun 30, 2004

Filed August 5, 2004For Securities:UPS

Summary

United Parcel Service Inc. (UPS) reported strong financial results for the six months ended June 30, 2004, with consolidated revenue increasing by 9.5% to $17.79 billion and net income rising by 21.0% to $1.577 billion, or $1.39 per diluted share. This growth was primarily driven by robust performance in its International Package and Non-Package segments, which saw revenue increases of 20.9% and 8.0%, respectively. The U.S. Domestic Package segment also showed solid gains, with revenue up 7.2% driven by increased volume and a 2.0% rise in revenue per piece. The company's financial health appears robust, with operating profit increasing by a significant 24.8% year-to-date. UPS continues to invest in its business, with capital expenditures projected at $2.2 billion for the full year 2004, funded by strong operating cash flows. The company also demonstrated a commitment to shareholder returns through increased dividend payments and substantial share repurchases, authorizing an additional $1.0 billion for buybacks in May 2004.

Key Highlights

  • 1Consolidated revenue increased by 9.5% to $17.79 billion for the first six months of 2004.
  • 2Net income rose by 21.0% to $1.577 billion, translating to diluted EPS of $1.39.
  • 3International Package segment revenue grew by 20.9% driven by strong export volume and revenue per piece.
  • 4U.S. Domestic Package segment revenue increased by 7.2%, supported by volume growth and rate increases.
  • 5Operating profit saw a significant jump of 24.8% year-to-date, indicating improved operational efficiency.
  • 6The company generated strong operating cash flow and continued to return capital to shareholders via dividends and share repurchases.
  • 7A global settlement for the EV insurance lawsuits was reached, with final approval pending; the financial impact is not expected to be material.

Frequently Asked Questions

Revenue growth was primarily driven by strong performance in the International Package segment, which saw a 20.9% increase due to double-digit export volume growth and improved revenue per piece, partly influenced by currency fluctuations and new fuel surcharges. The U.S. Domestic Package segment also contributed positively with a 7.2% revenue increase, stemming from higher volume and rate adjustments, while Non-Package operations, including Supply Chain Solutions, grew by 8.0%.

Consolidated operating expenses increased by 7.4% year-to-date, primarily due to higher compensation and benefits (up 8.3%) and increased fuel and purchased transportation costs. However, despite rising expenses, operating profit grew by a robust 24.8% year-to-date, indicating improved operational efficiency and strong revenue management, leading to expanded operating margins across all segments.

UPS expects to fund its projected $2.2 billion in capital expenditures for 2004 through its strong operating cash flow. The company demonstrated its commitment to shareholder value by increasing cash dividends and actively repurchasing shares, with an additional $1.0 billion authorized for share repurchases in May 2004. Management anticipates continued strong liquidity and capital resources to meet operational and investment needs.

The company reached a global settlement for the consolidated EV insurance lawsuits, with final court approval pending. While the settlement terms involve vouchers for services and attorney fees, UPS does not expect a material impact on its financial condition, results of operations, or liquidity. Other ongoing litigation is also not expected to have a material adverse effect.