10-QPeriod: Q3 FY2007

UNITED PARCEL SERVICE INC Quarterly Report for Q3 Ended Sep 30, 2007

Filed November 9, 2007For Securities:UPS

Summary

United Parcel Service (UPS) reported solid financial results for the nine months ended September 30, 2007, with consolidated revenue growing 4.0% year-over-year to $36.3 billion. Net income for the period was $3.023 billion, a slight decrease from $3.074 billion in the prior year, primarily impacted by a $221 million aircraft impairment charge and other one-time expenses. The company demonstrated strong operational cash flow, increasing to $5.268 billion for the nine months ended September 30, 2007, up from $4.076 billion in the same period of 2006. This improvement was driven by lower pension contributions and reduced income tax payments. UPS also continued its commitment to returning capital to shareholders through significant share repurchases and dividend payments. Key growth drivers included International Package operations, which saw revenue increase by 11.6% year-to-date, fueled by strong export volumes, particularly in Asia and Europe. Supply Chain & Freight also showed positive momentum, with revenue up 4.4% year-to-date, benefiting from improvements in forwarding and logistics, as well as strong growth in UPS Freight. However, U.S. Domestic Package operations experienced slower growth, with revenue up only 1.6% year-to-date. This segment was impacted by a slowing U.S. economy and competitive pressures, leading to modest volume increases and a slight decline in operating profit year-to-date, despite cost controls and rate adjustments.

Key Highlights

  • 1Consolidated revenue for the nine months ended September 30, 2007, increased by 4.0% to $36.3 billion, indicating continued top-line growth.
  • 2Net income for the nine months decreased slightly to $3.023 billion, impacted by a $221 million aircraft impairment charge and other one-time expenses.
  • 3Operating cash flow significantly increased to $5.268 billion for the nine months of 2007, up from $4.076 billion in the prior year, demonstrating strong operational efficiency and cash generation.
  • 4International Package segment revenue grew robustly by 11.6% year-to-date, driven by strong export volume and geographic expansion, particularly in Asia.
  • 5U.S. Domestic Package segment revenue saw modest growth of 1.6% year-to-date, facing headwinds from a slowing economy and increased competition, leading to a year-to-date operating profit decline.
  • 6UPS executed significant share repurchases totaling $2.027 billion for the first nine months of 2007, demonstrating a commitment to shareholder returns.
  • 7The company reached a tentative agreement on a new national master contract with the Teamsters union, which includes provisions for withdrawal from the Central States multi-employer pension plan, potentially resulting in a significant $6.1 billion pre-tax charge in Q4 2007.

Frequently Asked Questions

Consolidated revenue grew by 4.0% year-over-year. The International Package segment was a key driver, with revenue increasing 11.6% due to strong export volumes, particularly in Asia and Europe. The Supply Chain & Freight segment also contributed with a 4.4% revenue increase, benefiting from forwarding/logistics and UPS Freight.

UPS recognized a $221 million impairment and obsolescence charge for certain Boeing 727 and 747 aircraft in the first quarter of 2007. Additionally, a $68 million charge was recorded for a special voluntary separation opportunity (SVSO) program, and a $42 million restructuring charge was initiated in France for forwarding and logistics operations.

UPS generated substantial operating cash flow, increasing by over $1.1 billion year-to-date. The company actively repurchased shares, spending $2.027 billion in the first nine months of 2007, and increased its quarterly dividend payment to $0.42 per share. Capital expenditures were managed, with a focus on facilities while strategically adjusting aircraft orders.

UPS reached a tentative agreement with the Teamsters union. A significant provision is the planned withdrawal from the Central States multi-employer pension plan, which is expected to result in a pre-tax charge of $6.1 billion in the fourth quarter of 2007 upon ratification. The company anticipates this withdrawal liability will be deductible for tax purposes, potentially reducing future tax payments.