10-QPeriod: Q1 FY2009

UNITED PARCEL SERVICE INC Quarterly Report for Q1 Ended Mar 31, 2009

Filed May 7, 2009For Securities:UPS

Summary

United Parcel Service (UPS) reported a significant decrease in net income and earnings per share for the first quarter of 2009 compared to the same period in 2008, reflecting the severe impact of the global economic recession on its business. Revenue declined across all segments due to lower package volumes and reduced revenue per piece, driven by decreased demand and lower fuel surcharges. The company incurred a substantial impairment charge related to its aircraft fleet. Despite the challenging operating environment, UPS maintained a strong liquidity position, with significant net cash provided by operating activities and substantial unused credit facilities. The company also proactively managed its debt, issuing new senior notes while slowing its share repurchase program in response to economic uncertainty. Management remains focused on cost containment and offsetting dilution from stock compensation.

Financial Highlights

27 data points
Beta

Revenue

$10.94B

Net Income

$401.00M

3.7% Net Margin

EPS (Diluted)

$0.40

Cash & Equivalents

$3.74B

Free Cash Flow

$1.81B

Financial Statements
Beta
Revenue$10.94B
Operating Expenses$10.22B
Operating Income$718.00M
Interest Expense$82.00M
Net Income$401.00M
EPS (Basic)$0.40
EPS (Diluted)$0.40

Key Highlights

  • 1Revenue declined 13.7% to $10.9 billion due to widespread weakness across all operating segments, primarily driven by a 3.9% decrease in consolidated average daily package volume and a 6.9% decrease in average revenue per piece.
  • 2Net income significantly decreased by 55.7% to $401 million, and diluted EPS fell 54.0% to $0.40, largely due to the economic downturn and a $181 million impairment charge for aircraft.
  • 3The U.S. Domestic Package segment experienced a substantial revenue drop of 10.2% and a 60.0% decrease in operating profit, impacted by economic recession and lower asset utilization.
  • 4International Package revenue fell 18.8% and operating profit decreased 30.2%, affected by global economic slowdown, currency fluctuations, and lower fuel surcharges.
  • 5Supply Chain & Freight revenue decreased 19.8% with operating profit down 64.6%, primarily due to weakness in forwarding and logistics and the UPS Freight unit.
  • 6The company generated strong operating cash flow of $2.196 billion, though lower than the prior year, and ended the quarter with $3.738 billion in cash and cash equivalents.
  • 7UPS raised $1.989 billion in net proceeds from issuing new senior notes in March 2009 to support general corporate purposes and reduce commercial paper balances.

Frequently Asked Questions

The primary driver of the significant decline in net income was the severe impact of the global economic recession, which led to lower package volumes and reduced revenue per piece across all business segments. Additionally, a substantial $181 million impairment charge related to the company's aircraft fleet negatively impacted net income.

UPS generated substantial net cash from operating activities ($2.196 billion) and maintained a strong cash position ($3.738 billion). The company also managed its debt by issuing $1.989 billion in new senior notes and maintained significant availability under its credit facilities. Share repurchase activity was slowed due to economic uncertainty.

Significantly lower fuel prices led to reduced fuel surcharge revenues for both domestic and international shipments. While this decreased revenue, it also contributed to lower operating expenses. The company's fuel surcharge rates decreased considerably compared to the prior year, impacting overall revenue but also reflecting decreased input costs.

The company is involved in ongoing wage-and-hour class-action lawsuits and challenges related to the Americans with Disabilities Act. Additionally, there are lawsuits from franchisees of The UPS Store. While UPS is vigorously defending itself, the ultimate liability and impact on financial condition, results of operations, or liquidity are not yet determined for some of these matters. The company also noted ongoing investigations by the DOJ and European Commission regarding pricing practices.