10-QPeriod: Q3 FY2006

UNITED PARCEL SERVICE INC Quarterly Report for Q3 Ended Sep 30, 2006

Filed November 6, 2006For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported strong financial performance for the quarter and nine months ended September 30, 2006. The company demonstrated robust revenue growth across all segments, driven by increased package volumes and strategic pricing initiatives, including rate increases and adjusted fuel surcharges. U.S. Domestic Package operations and International Package operations were key contributors to this growth. The Supply Chain & Freight segment, while facing some integration challenges post-acquisition, also showed significant revenue expansion. Overall profitability saw a healthy increase, with net income rising 8.9% for the quarter and 9.0% year-to-date. Diluted Earnings Per Share (EPS) also saw a corresponding increase, outpacing net income growth due to ongoing share repurchase programs. The company maintained a strong liquidity position, with substantial net cash provided by operating activities, although this was slightly lower year-over-year due to significant pension contributions and a prior-year tax receipt. UPS continued to invest heavily in capital expenditures to support future growth and operational efficiency.

Key Highlights

  • 1Consolidated revenue increased by 10.5% to $11.66 billion for the third quarter and 14.0% to $34.92 billion for the nine months ended September 30, 2006.
  • 2Net income grew by 8.9% to $1.04 billion for the third quarter and 9.0% to $3.07 billion for the nine months, indicating strong operational performance.
  • 3U.S. Domestic Package segment revenue increased by 5.2% and International Package segment revenue grew by 17.4% in the third quarter, demonstrating broad-based growth.
  • 4Supply Chain & Freight segment revenue saw substantial growth of 25.6% in the third quarter, largely driven by acquisitions, though operating profit in this segment declined year-over-year.
  • 5Diluted Earnings Per Share (EPS) increased to $0.96 for the third quarter and $2.82 year-to-date, outperforming net income growth due to share repurchases.
  • 6The company made significant capital expenditures of $2.297 billion in the first nine months for aircraft, vehicles, and facility expansions.
  • 7A tentative settlement for the Cornn class action litigation amounting to $87 million was agreed upon, impacting operating profit for the U.S. Domestic Package segment in the third quarter.

Frequently Asked Questions

For the third quarter of 2006, UPS reported consolidated revenue of $11.66 billion, an increase of 10.5% compared to the same period in 2005. Year-to-date, revenue grew by 14.0% to $34.92 billion. This growth was driven by increases in all operating segments, particularly U.S. Domestic Package and International Package operations.

Net income for the third quarter of 2006 rose by 8.9% to $1.04 billion, and for the nine months ended September 30, 2006, it increased by 9.0% to $3.07 billion. Diluted Earnings Per Share (EPS) also saw positive movement, reaching $0.96 for the quarter and $2.82 year-to-date, reflecting improved operational efficiency and the impact of share repurchases.

The U.S. Domestic Package segment benefited from a solid U.S. economy and strong small package market, leading to a 5.2% revenue increase in the quarter. The International Package segment saw robust growth of 17.4% in revenue, fueled by acquisitions and strong export volume. The Supply Chain & Freight segment experienced a significant 25.6% revenue jump, primarily due to acquisitions, although integration challenges impacted its operating profit.

UPS made substantial capital expenditures totaling $2.297 billion in the first nine months of 2006, primarily for aircraft, vehicles, and facility expansion. A significant operating expense was an $87 million charge related to the tentative settlement of the Cornn class action litigation, which affected the U.S. Domestic Package segment's operating profit in the third quarter. Additionally, the company made considerable contributions to its pension and postretirement benefit plans.