UPS second-quarter profit rises 90% to $845 million

Photo: UPS 747-400.

UPS posted second-quarter net income of $845 million, up 89.9% over a $445 million profit in the prior-year period, and noted that "strong export growth in all regions" with Asia leading the way helped to boost the bottom line.

Chairman and CEO Scott Davis said the impressive quarter was achieved despite "a mixed global economic environment." He credited "superb execution" throughout its global delivery network and "the US domestic reorganization" for allowing it to achieve "better than expected results." UPS in January announced a "streamlining" of its US domestic management structure, leading to the elimination of 1,800 management and administrative jobs this year. He said the US reorganization, which included dividing the country into three delivery/shipping regions instead of five and "giving more autonomy to local operations," has been completed and already is yielding "significant network synergies" (ATW Daily News, Jan. 11).

UPS is considered a harbinger of the global economy's direction, and company executives did not paint an overly rosy picture in a conference call last week with analysts. Consumer confidence remains weak, but business confidence is rising and particularly manifesting itself in growth in high-yield, air-reliant international shipping that benefits the Atlanta-based express operator, they said.

"We don't expect robust economic recovery," CFO Kurt Kuehn explained. "But we think even in this modest environment we can prosper and raise profits substantially." UPS lifted its full-year earnings guidance 45%-50% to $3.35-$3.45 per share. The guidance accounts for "slow economic growth in the US" and "uncertainty" in Europe, Kuehn noted.

Much of the company's confidence is based on its growing strength in Asia, where it continues its expansion via alliances with local operators (ATW Daily News, June 4), a strategy Davis said is working well and will continue. International package revenue jumped 23% year-over-year in the quarter to $2.77 billion as export growth rose 15% with Asian export growth up 40%. Average international volume per day increased 19.8% to 2.18 million pieces. "We've seen international volume exceed 2 million per day for three straight quarters," Kuehn said, noting that business-to-business shipping is growing faster than business-to-consumer shipping.

Davis commented, "There's a pretty good consensus that this will be a business-led recovery and you'll continue to see industrial production lead the way." UPS's total second-quarter revenue heightened 12.7% to $12.2 billion while expenses climbed 8.7% to $10.8 billion, producing operating income of $1.4 billion, up 56.6% over an $895 million operating profit in the year-ago period.

Separately, UPS Airlines signed a 10-year agreement with GE Aviation relating to MRO of 142 CF6-80C2 engines powering its MD-11, 747-400 and 767-300 aircraft. The agreement is valued at approximately $1 billion over its life and extends an existing 15-year service agreement.