10-QPeriod: Q3 FY2009

UNITED PARCEL SERVICE INC Quarterly Report for Q3 Ended Sep 30, 2009

Filed November 6, 2009For Securities:UPS

Summary

United Parcel Service (UPS) reported its third quarter and year-to-date results for 2009, a period marked by significant revenue and profit declines compared to the prior year, largely attributable to the challenging macroeconomic environment. Total revenue for the quarter ended September 30, 2009, decreased by 14.9% to $11.153 billion, while net income fell by 43.4% to $549 million. This performance reflects the ongoing impact of the global recession on shipping volumes and pricing. The company has been actively managing its expenses and capital expenditures to adapt to lower demand. While certain operating expenses were reduced, the company also incurred a significant impairment charge of $181 million in the first quarter related to its DC-8 aircraft fleet. Despite the downturn, UPS demonstrated resilience by maintaining its share repurchase program at a reduced pace and continuing its regular quarterly dividend payments, signaling confidence in its long-term stability. The company's strong balance sheet and access to credit facilities provide a solid foundation for navigating the current economic climate.

Financial Highlights

50 data points
Beta

Revenue

$11.15B

Net Income

$549.00M

4.9% Net Margin

EPS (Diluted)

$0.55

Total Assets

$32.21B

Cash & Equivalents

$2.24B

Free Cash Flow

$564.00M

Financial Statements
Beta
Revenue$11.15B
Operating Expenses$10.22B
Operating Income$929.00M
Interest Expense$93.00M
Net Income$549.00M
EPS (Basic)$0.55
EPS (Diluted)$0.55
Shares Outstanding (Basic)997.00M
Shares Outstanding (Diluted)1.00B

Key Highlights

  • 1Revenue decline of 14.9% to $11.153 billion for the third quarter, attributed to decreased package volumes and lower revenue per piece across all segments.
  • 2Net income decreased by 43.4% to $549 million for the third quarter, impacted by lower revenues and operating expenses, including an $181 million aircraft impairment charge.
  • 3U.S. Domestic Package segment saw a significant 12.4% revenue drop, with Ground volume down 6.2% and revenue per piece down 9.1%, impacted by economic weakness and lower fuel surcharges.
  • 4International Package revenue declined 17.9%, affected by a slowdown in global trade, though non-U.S. domestic volume saw growth, partly due to acquisitions.
  • 5Supply Chain & Freight revenue decreased 19.8%, driven by lower demand in forwarding and logistics, and a decline in UPS Freight's LTL services.
  • 6Operating expenses decreased by 10.9% year-over-year, aided by cost containment measures and reduced activity, though compensation and benefits saw an increase due to higher pension and healthcare costs.
  • 7The company maintained its share repurchase program at a moderated pace, repurchasing $396 million worth of shares in the first nine months of 2009, and continued its quarterly dividend payments.

Frequently Asked Questions

The global economic downturn significantly impacted UPS's performance, leading to a 14.9% decrease in revenue and a 43.4% drop in net income for the third quarter of 2009 compared to the prior year. This was primarily due to reduced shipping volumes across all business segments, lower revenue per piece driven by decreased fuel surcharges and pricing adjustments, and a shift in product mix towards lower-yield services as businesses and consumers managed expenses.

UPS incurred an $181 million impairment charge in the first quarter of 2009 related to its McDonnell-Douglas DC-8-71 and DC-8-73 aircraft fleets. This charge was recognized because the cost basis of these fleets was determined to be unrecoverable due to accelerated expected retirement dates, driven by lower utilization and future maintenance cost considerations. This impairment charge negatively impacted the U.S. Domestic Package segment's results.

UPS demonstrated a focus on financial flexibility. While net cash from operating activities decreased, partly due to the absence of significant tax benefits seen in the prior year, the company reduced its capital expenditures by $923 million year-over-year for the first nine months of 2009. The company also slowed its share repurchase activity, repurchasing $396 million in shares, and maintained its regular quarterly dividend payments. UPS also has access to significant revolving credit facilities totaling $4.0 billion, with no outstanding borrowings as of September 30, 2009, indicating a strong liquidity position.

The report indicates ongoing weakness in the U.S. Domestic Package segment due to the recession, though air volume showed some resilience, potentially benefiting from competitor exits. International Package operations are facing headwinds from global trade slowdowns but see growth in certain regional domestic markets. The Supply Chain & Freight segment is also experiencing reduced demand, particularly in forwarding and logistics, and facing challenges in the LTL market. The company's strategy appears to involve cost management and optimizing operations across these segments in response to the prevailing economic conditions.