UPS reports Q3 net income is down 43 percent
Despite quarterly loss, company notes strategic investments have it well positioned for future growth
Jeff Berman -- Logistics Management, 10/22/2009
ATLANTA-The ongoing slow economic recovery is reflected in today's third quarter earnings release from UPS, with the company announcing that quarterly net income at $549 million was down 43 percent and total revenue for the quarter of $11.2 billion was off nearly 15 percent year-over-year.
UPS' operating profit of $929 million was down 43.1 percent year-over-year, with its operating margin of 8.3 percent off 4.1 percent.
Despite the net income and operating margin declines, UPS CEO Scott Davis said in a statement that he is "encouraged by the signs of economic recovery that are becoming apparent, although we still have a long way to go." Davis added that ongoing strategic investment has positioned UPS to capitalize on growth opportunities around the world, noting that UPS is managing operations well, while controlling costs and maintaining excellent service.
UPS CFO Kurt Kuehn said that the business environment in the third quarter began similarly to the second quarter, and he noted that the company saw profitability improvement due to effective cost management and firming volume later in the quarter.
Widely viewed as a barometer for overall economic activity, average daily package volume during the third quarter for UPS was 14.3 million, which matched the second quarter, and was down 3.9 percent year-over-year from last year's 14.9 million. Average revenue per piece was $9.90 was off 11.3 percent compared to last year's $11.16. And consolidated volume at 927 million packages was down 2.4 percent from last year's 950 million packages.
Revenue breakdown by company segment: UPS' U.S. domestic revenue at $6.87 billion was down 12.4 percent, with average daily volume at 12.3 million compared to 13 million last year-a 5.1 percent year-over-year decline.
International Package revenue at $2.42 billion was down 17.9 percent compared to last year's $2.95 billion, and average daily package volume at 1.97 million was up by 4 percent compared to last year's 1.9 million. UPS said that average daily export volume at 767,000 was down 3.2 percent.
Quarterly revenue for the Supply Chain and Freight business units was down 19.8 percent year-over-year at $1.86 billion. UPS officials said that its logistics and forwarding units saw moderation in its rate of revenue decline, and they added that UPS Freight, its less-than-truckload unit, was negatively impacted by difficult market conditions.
A closer look at CapEx: UPS said that on a year-to-date basis, its capital expenditures are $1.185 billion. CFO Kuehn said that through various cost initiatives, which will approach $1.4 billion this year. These cost measures include consolidating operating districts, reducing air segments, and eliminating some package handling operations. Other cost-cutting measures taken by UPS in 2009 include freezing management salaries and suspending its 401(k) company match.
And Kuehn added that UPS will reduce its 2009 capital expenditures to $1.7 billion, which is down $500 million from its original budget.
SJ Consulting President Satish Jindel told LM that this reduction in capex shows that UPS is being very judicious in its spending and overall network spend, adding that over the past three year's average annual capex for UPS has been between $2.6 billion and $3 billion.
"The company has done a very good job in the third quarter of managing the cost side...despite all of the challenges in the market," said Jindel.
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The most telling statement on the conference call was that they are going to go after the lower yeilding price accounts so that they contribute their appropriate profit.
Translated that means some accounts are going to get their discounts adjusted.
Time to be developing a relationship with the reps from the USPS and FedEx folks.
Jerry Hempstead - 2009-23-10 18:33:01 EDT
UPS reports Q2 net income down 49 percent
07/22/2009UPS says Q3 income is down nearly 10 percent
10/22/2008
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