10-QPeriod: Q1 FY2006

UNITED PARCEL SERVICE INC Quarterly Report for Q1 Ended Mar 31, 2006

Filed May 10, 2006For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported strong revenue growth for the first quarter of 2006, with consolidated revenue increasing by 16.5% to $11.521 billion compared to the prior year period. This growth was primarily driven by robust performance in its U.S. Domestic Package and International Package segments, benefiting from solid economic conditions and strategic acquisitions. The company's net income rose by 10.5% to $975 million, resulting in diluted earnings per share of $0.89, up from $0.78 in the first quarter of 2005. Key to this performance was the significant revenue increase in the Supply Chain & Freight segment, largely due to the acquisition of Overnite Corporation (now UPS Freight). Despite this overall positive financial picture, the Supply Chain & Freight segment experienced a decrease in operating profit, attributed to integration costs and changes in its business model. The company also demonstrated continued commitment to shareholder returns through substantial share repurchases and increased dividend payments.

Key Highlights

  • 1Consolidated revenue increased by 16.5% to $11.521 billion for the quarter ended March 31, 2006.
  • 2Net income grew by 10.5% to $975 million, with diluted EPS rising to $0.89 from $0.78 in the prior year.
  • 3U.S. Domestic Package revenue saw a 9.6% increase, driven by strong volume growth across all products.
  • 4International Package revenue surged by 17.3%, supported by a 29.1% increase in average daily package volume, including contributions from acquisitions.
  • 5The Supply Chain & Freight segment's revenue grew significantly by 53.9%, largely due to the acquisition of UPS Freight.
  • 6Despite revenue growth, the Supply Chain & Freight segment's operating profit declined due to integration costs and business model adjustments.
  • 7Net cash from operating activities increased to $2.528 billion, reflecting improved profitability.

Frequently Asked Questions

UPS's revenue growth was primarily driven by a 16.5% increase in consolidated revenue, fueled by strong performance in its U.S. Domestic Package segment (up 9.6%) and International Package segment (up 17.3%). The acquisition of Overnite Corporation (now UPS Freight) significantly boosted the Supply Chain & Freight segment's revenue, contributing to the overall increase.

The acquisitions completed in 2005, notably Overnite Corporation (UPS Freight), Lynx Express Ltd., and Messenger Service Stolica S.A., had a substantial impact. They significantly contributed to the revenue growth in the Supply Chain & Freight and International Package segments. While UPS Freight drove revenue growth, the Supply Chain & Freight segment's operating profit was negatively impacted by integration costs associated with these acquisitions.

UPS demonstrated its commitment to shareholder returns through significant share repurchases, buying back 11.6 million shares for $867 million in the first quarter of 2006. Additionally, the company increased its quarterly cash dividend to $0.38 per share from $0.33 per share in the prior year, indicating confidence in its financial performance and future prospects.

The report indicates that the Supply Chain & Freight segment experienced a decrease in operating profit due to integration costs and ongoing changes to its business model. Additionally, the company is involved in several class-action lawsuits related to wage-and-hour laws, the outcome of which is currently undetermined but not expected to have a material adverse effect. There is also ongoing investigation into potential Foreign Corrupt Practices Act violations within a subsidiary.