10-QPeriod: Q2 FY2006

UNITED PARCEL SERVICE INC Quarterly Report for Q2 Ended Jun 30, 2006

Filed August 4, 2006For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported its financial results for the second quarter and first half of 2006, showcasing robust revenue growth across its segments. Consolidated revenue increased by 15.2% in the quarter and 15.8% year-to-date, driven by strong performance in U.S. Domestic Package and significant contributions from acquisitions in the Supply Chain & Freight segment. The company's net income also saw a healthy rise, up 7.6% for the quarter and 9.0% year-to-date, reflecting effective operational management and strategic growth initiatives. Key drivers of this growth included a solid U.S. economy, continued expansion in international markets, and the integration of recent acquisitions such as Overnite Corp. (UPS Freight). Despite increased operating expenses, particularly due to acquisitions and higher fuel costs, UPS managed to improve its operating profit, demonstrating strong cost control and pricing strategies. The company also continued its commitment to returning capital to shareholders through share repurchases and increased dividend payments, signaling confidence in its future financial performance.

Key Highlights

  • 1Consolidated revenue grew by 15.2% in Q2 2006 to $11.74 billion and by 15.8% year-to-date to $23.26 billion, indicating strong top-line performance.
  • 2Net income increased by 7.6% in Q2 2006 to $1.061 billion and by 9.0% year-to-date to $2.036 billion, demonstrating improved profitability.
  • 3Diluted earnings per share (EPS) rose by 10.2% in Q2 2006 to $0.97 and by 12.0% year-to-date to $1.86, outpacing net income growth due to share repurchases.
  • 4U.S. Domestic Package revenue increased by 7.5% in Q2 2006, supported by a 4.7% rise in average daily package volume.
  • 5International Package revenue surged by 11.8% in Q2 2006, driven by strong volume growth in export products and contributions from acquisitions.
  • 6The Supply Chain & Freight segment saw a significant revenue increase of 63.0% in Q2 2006, heavily influenced by the acquisition of UPS Freight.
  • 7The company returned significant capital to shareholders, repurchasing $1.421 billion in common stock year-to-date and increasing its quarterly dividend payment to $0.38 per share.

Frequently Asked Questions

The primary driver of revenue growth was a combination of robust performance in the U.S. Domestic Package segment, strong volume growth in the International Package segment, and the significant revenue contribution from acquisitions, particularly UPS Freight, within the Supply Chain & Freight segment. Overall, consolidated revenue increased by 15.2%.

Acquisitions, notably Overnite Corporation (now UPS Freight) and Lynx Express Ltd., had a substantial positive impact on revenue, especially in the Supply Chain & Freight and International Package segments. These acquisitions contributed significantly to the overall revenue growth, although they also increased operating expenses.

UPS demonstrated a strong commitment to returning capital to shareholders. During the first six months of 2006, the company repurchased $1.421 billion of its common stock and increased its quarterly cash dividend to $0.38 per share from $0.33 per share in the prior year. The Board of Directors also authorized an additional $2.0 billion for future share repurchases.

UPS is involved in several class-action lawsuits related to wage-and-hour laws and allegations of a conspiracy concerning air cargo surcharges. While the company intends to vigorously defend itself, the ultimate resolution and potential financial impact of these matters are not yet determined. Additionally, an internal investigation into potential violations of the Foreign Corrupt Practices Act within its Supply Chain Solutions subsidiary is ongoing, though the company does not expect a material adverse effect.