10-QPeriod: Q1 FY2007

UNITED PARCEL SERVICE INC Quarterly Report for Q1 Ended Mar 31, 2007

Filed May 10, 2007For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported its first-quarter 2007 financial results, showing a year-over-year decrease in net income to $843 million from $975 million in the prior year, translating to diluted EPS of $0.78 compared to $0.89. This decline was primarily attributed to a significant $221 million aircraft impairment and obsolescence charge, along with a $68 million special voluntary separation opportunity (SVSO) charge impacting operating expenses. Despite these headwinds, the company experienced revenue growth across its segments, with total consolidated revenue increasing by 3.3% to $11.91 billion, driven by a robust 10.4% increase in International Package revenue and a 3.8% rise in Supply Chain & Freight revenue. U.S. Domestic Package revenue saw a more modest 1.2% increase. Despite the net income decrease, operational performance showed resilience. The International Package segment, in particular, demonstrated strong volume and revenue per piece growth, fueled by expansion in Asia. UPS Freight also reported revenue growth, albeit in a challenging LTL market. The company continued its capital allocation strategy, repurchasing $642 million in stock and increasing its quarterly dividend to $0.42 per share. Management highlighted the ongoing review of its aircraft fleet and strategic investments in international infrastructure, such as the new air hub in Shanghai, to support future growth.

Key Highlights

  • 1Consolidated revenue grew 3.3% to $11.91 billion, driven by international expansion and freight services.
  • 2Net income decreased by 13.5% to $843 million, largely due to a $221 million aircraft impairment charge and a $68 million SVSO charge.
  • 3Diluted Earnings Per Share (EPS) declined to $0.78 from $0.89 in the prior year's quarter.
  • 4International Package segment revenue increased by 10.4%, with strong performance in export volumes, particularly from Asia.
  • 5U.S. Domestic Package revenue saw a modest 1.2% increase, impacted by slight volume declines in air services and a mixed product mix.
  • 6The company repurchased $642 million of its common stock and increased its quarterly dividend to $0.42 per share.
  • 7UPS is investing in international infrastructure, including a new air hub in Shanghai scheduled for 2008.

Frequently Asked Questions

The primary reasons for the decrease in net income were a significant aircraft impairment and obsolescence charge of $221 million and a special voluntary separation opportunity (SVSO) charge of $68 million. These charges impacted operating expenses and reduced overall profitability.

The International Package segment showed the strongest revenue growth, increasing by 10.4%. The Supply Chain & Freight segment also saw positive growth of 3.8%. The U.S. Domestic Package segment experienced more modest revenue growth of 1.2%.

UPS continued to return capital to shareholders through share repurchases, buying back $642 million in stock during the quarter. They also increased their quarterly dividend to $0.42 per share, indicating confidence in their financial position and future earnings.

The company is involved in several class-action lawsuits, notably one regarding wage-and-hour laws where they agreed to a $87 million settlement expected to be paid in the second quarter of 2007. They are also facing potential exposure from other lawsuits and multi-employer pension plans, though they believe these will not have a material adverse effect on their financial condition.