10-QPeriod: Q2 FY2008

UNITED PARCEL SERVICE INC Quarterly Report for Q2 Ended Jun 30, 2008

Filed August 8, 2008For Securities:UPS

Summary

United Parcel Service (UPS) reported its financial results for the second quarter and first half of 2008, ending June 30, 2008. The company experienced a decrease in net income and diluted earnings per share compared to the prior year, largely driven by a decline in operating profit in its U.S. Domestic and International Package businesses. This decline was attributed to a slowing U.S. economy, rising fuel costs that outpaced surcharges due to a time lag, and a shift in product mix towards lower-yielding services. Despite these headwinds, revenue saw an increase, driven by growth in International Package operations and Supply Chain & Freight. The company also highlighted its commitment to shareholder value through an enhanced share repurchase program, increasing the authorization to $10.0 billion. UPS maintained strong operating cash flow, which increased significantly year-over-year due to a large tax refund related to pension fund withdrawal, and ended the quarter with substantial liquidity. Key challenges include managing the impact of economic slowdown, volatile fuel prices, and ongoing legal proceedings. However, the company's strategic initiatives, including pricing adjustments and operational efficiencies, aim to mitigate these pressures.

Financial Highlights

27 data points
Beta

Revenue

$13.00B

Net Income

$873.00M

6.7% Net Margin

EPS (Diluted)

$0.85

Cash & Equivalents

$1.18B

Free Cash Flow

$3.64B

Financial Statements
Beta
Revenue$13.00B
Operating Expenses$11.55B
Operating Income$1.45B
Interest Expense$104.00M
Net Income$873.00M
EPS (Basic)$0.86
EPS (Diluted)$0.85

Key Highlights

  • 1Consolidated revenue increased by 6.7% to $13.0 billion for the quarter and 6.6% to $25.7 billion for the six months ended June 30, 2008, compared to the prior year periods.
  • 2Net income for the second quarter decreased by 20.9% to $873 million, and diluted EPS fell by 18.3% to $0.85, reflecting increased operating expenses and lower operating profit in key segments.
  • 3U.S. Domestic Package revenue grew 1.8% to $7.7 billion for the quarter, but operating profit declined 24.6% due to a slowing economy, higher fuel costs, and lower asset utilization.
  • 4International Package revenue surged 17.9% to $2.9 billion for the quarter, driven by strong export volume and revenue per piece growth, though operating profit saw a 14.3% decrease.
  • 5Supply Chain & Freight segment showed robust growth, with revenue up 10.9% to $2.3 billion and operating profit increasing 51.0% for the quarter.
  • 6The company significantly increased its share repurchase authorization to $10.0 billion and repurchased $2.49 billion of stock in the first six months of 2008.
  • 7Net cash provided by operating activities increased substantially to $5.03 billion for the first six months of 2008 from $3.60 billion in the prior year, aided by a significant tax refund.

Frequently Asked Questions

The decrease in net income and diluted earnings per share was primarily driven by a decline in operating profit within the U.S. Domestic and International Package segments. This was due to a combination of factors including the slowing U.S. economy impacting volume, rapidly escalating fuel costs that outpaced the company's ability to recapture them through surcharges due to a time lag, and a shift in product mix towards lower-yielding services.

Consolidated revenue saw an increase, with strong growth in the International Package segment (up 17.9% for the quarter) and the Supply Chain & Freight segment (up 10.9% for the quarter). The U.S. Domestic Package segment also experienced revenue growth (up 1.8% for the quarter), although it faced significant challenges in operating profit.

UPS announced a new financial policy and increased its share repurchase authorization to $10.0 billion, intending to complete this level of repurchases during 2008 and 2009. The company also continued to pay regular cash dividends, increasing its quarterly dividend to $0.45 per share. These actions demonstrate a commitment to enhancing shareholder value.

Rising fuel costs, particularly for jet fuel and diesel, had a substantial negative impact. While fuel surcharges were increased, there was a time lag between the increase in fuel prices and the adjustment of surcharges, which hindered the company's ability to fully recover these higher expenses in the short term. This pressure affected profitability in both the U.S. Domestic and International Package segments.