10-QPeriod: Q2 FY2005

UNITED PARCEL SERVICE INC Quarterly Report for Q2 Ended Jun 30, 2005

Filed August 9, 2005For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported a strong second quarter of 2005, with consolidated revenue increasing by 14.9% to $10.191 billion, compared to $8.871 billion in the prior year. This growth was driven by robust performance across its U.S. Domestic Package and International Package segments, which saw significant revenue and volume increases. The Supply Chain Solutions segment also experienced substantial revenue growth, primarily due to the acquisition of Menlo Worldwide Forwarding. Net income rose by 20.5% to $986 million, or $0.88 per diluted share, up from $818 million, or $0.72 per diluted share, in the same period last year. The company's operational efficiency improved, with consolidated operating margin increasing to 15.2% from 14.8% in the prior year. This improvement was supported by effective cost management, including benefits from a revised Management Incentive Awards program. UPS also benefited from higher fuel surcharges and strategic rate increases implemented at the beginning of the year. The company's liquidity remains strong, with net cash from operating activities increasing significantly, bolstered by a substantial tax refund. UPS continues to invest in its business through capital expenditures and strategic acquisitions, including the recent announcement of the acquisition of Overnite Corporation.

Key Highlights

  • 1Consolidated revenue grew 14.9% year-over-year to $10.191 billion, driven by strong performance in all segments.
  • 2Net income increased by 20.5% to $986 million, with diluted EPS rising to $0.88.
  • 3U.S. Domestic Package revenue increased 5.7% due to higher volume and revenue per piece, supported by rate increases and fuel surcharges.
  • 4International Package revenue surged 22.7%, fueled by significant export volume growth, especially in Asia, and currency tailwinds.
  • 5Supply Chain Solutions revenue nearly doubled (up 84.9%), largely attributed to the acquisition of Menlo Worldwide Forwarding.
  • 6Operating margin improved to 15.2% from 14.8% in the prior year, reflecting operational efficiencies and favorable pricing.
  • 7Net cash from operating activities increased to $4.080 billion for the first six months of 2005, aided by a $374 million tax refund.

Frequently Asked Questions

The primary drivers of UPS's revenue growth in the second quarter of 2005 were strong volume increases across its U.S. Domestic and International Package segments, coupled with revenue per piece improvements. The significant revenue contribution from the acquisition of Menlo Worldwide Forwarding also substantially boosted consolidated revenue.

The acquisition of Menlo Worldwide Forwarding significantly boosted the Supply Chain Solutions segment's revenue, nearly doubling it year-over-year. While it contributed to revenue growth, it also led to operating losses and integration costs within that segment during the quarter.

The International Package segment showed exceptional performance with revenue up 22.7% driven by strong export volume growth, particularly in Asia, and beneficial currency fluctuations. The company is expanding its international delivery network, indicating a positive outlook for this segment.

While UPS has resolved significant past tax issues and a large class-action lawsuit related to excess value insurance, the company is currently a defendant in class-action lawsuits regarding state wage-and-hour laws (e.g., overtime, meal/rest breaks). The outcome of these lawsuits is not yet determined and could potentially have a material impact, though UPS is vigorously defending itself. Additionally, participation in multi-employer pension plans presents potential future funding deficiency risks.