10-QPeriod: Q3 FY2005

UNITED PARCEL SERVICE INC Quarterly Report for Q3 Ended Sep 30, 2005

Filed November 9, 2005For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported strong financial results for the third quarter and the first nine months of 2005, driven by robust revenue growth across its key segments. The company saw a significant increase in consolidated revenue, up 17.9% for the quarter and 14.5% year-to-date, largely fueled by strategic acquisitions, particularly Overnite Corporation and Menlo Worldwide Forwarding, which bolstered the Supply Chain and Freight segment. Profitability also showed improvement, with consolidated operating profit increasing by 19.1% for the quarter and 17.1% year-to-date. This growth was primarily attributed to strong performance in the U.S. Domestic Package and International Package segments, supported by volume increases and favorable pricing adjustments, including a modified fuel surcharge. The company's strategic investments and focus on operational efficiency appear to be yielding positive financial outcomes for investors.

Key Highlights

  • 1Consolidated revenue surged by 17.9% year-over-year to $10.55 billion in Q3 2005 and by 14.5% to $30.63 billion in the first nine months.
  • 2The Supply Chain and Freight segment experienced explosive revenue growth of 129.7% in Q3 and 100.5% year-to-date, primarily due to the acquisitions of Menlo Worldwide Forwarding and Overnite Corporation.
  • 3Consolidated operating profit increased by 19.1% to $1.50 billion in Q3 2005, with strong contributions from U.S. Domestic Package (+18.0%) and International Package (+19.5%) segments.
  • 4Net income rose to $953 million in Q3 2005 from $890 million in Q3 2004, translating to a 10.3% increase in diluted EPS to $0.86.
  • 5Significant capital expenditures were made in Q3 2005 ($1.61 billion year-to-date), including orders for new aircraft, reflecting investment in future capacity and growth.
  • 6UPS continued its aggressive share repurchase program, buying back $1.95 billion worth of stock in the first nine months of 2005, alongside an increase in quarterly dividends.
  • 7The company successfully integrated several key acquisitions, including Overnite, Menlo Worldwide Forwarding, Lynx Express, and operations in China, expanding its service offerings and geographic reach.

Frequently Asked Questions

Revenue growth was primarily driven by strong performance in the U.S. Domestic Package segment due to increased volume and rate adjustments, significant expansion in the International Package segment fueled by volume and currency fluctuations, and substantial growth in the Supply Chain and Freight segment, largely attributable to the acquisitions of Menlo Worldwide Forwarding and Overnite Corporation.

The acquisitions of Overnite Corporation and Menlo Worldwide Forwarding significantly boosted the Supply Chain and Freight segment's revenue and operating profit. While contributing positively to overall revenue, the integration of Menlo also incurred some operating losses and associated integration costs, which were noted in the company's discussion of the segment's performance.

UPS maintained strong liquidity with $1.708 billion in cash and cash equivalents at the end of Q3 2005. The company has significant borrowing capacity through commercial paper programs and credit facilities. While debt levels increased due to acquisitions and benefit plan funding, the company has robust operating cash flows and does not anticipate material adverse effects on its liquidity from current debt obligations or legal proceedings.

UPS is preparing to adopt FASB Statement No. 123R (Share-Based Payment) in January 2006, which requires expensing of share-based awards at fair value. The company anticipates minimal impact from this adoption as it has been expensing unvested awards under FAS 123. No other recent accounting pronouncements are expected to have a material impact on the company's financial condition or results of operations.