UPS Q3 profit: $1.58 billion
UPS Q3 Earnings Call - Brown is good
Posted Oct 19th 2006 4:45PM by Victoria Erhart
United Parcel Service Inc. released Q3 2006 earnings today. Despite high fuel prices during much of Q3, UPS posted strong number in domestic and international package shipments. This good news was offset by problems in the supply chain and freight segment caused by the inability to integrate recently acquired Motor Cargo into the UPS system.
CFO Scott Davis presented financial highlights. Overall, UPS revenue was up over $1 billion from Q3 205, totaling $11.66 billion. Operating profit was $1.58 billion for the quarter. Average daily package volume was up from 14.3 million in Q3 2005 to 15.1 million in Q3 2006. Diluted EPS stand at $0.96, up 12%. UPS generated $4 billion in cash from operations; repurchased 26.5 million share; paid $1.6 billion in dividends; invested $2.3 billion in capital expenditures; and contributed $1.5 billion to UPS-sponsored pension plans.
CEO Mike Eskew spoke about his vision for UPS: "A company that can handle any weight shipment anywhere in the world via any mode of transport with time definite delivery." Q3 was "stronger than anticipated" despite supply chain and freight segment problems. Revenue in this segment totaled $2 billion, with an operating loss of $19 million. Eskew anticipates 1200 job cuts in this segment in Q4, leading to $10-20 million in severance expenses. He expects $100 million in cost savings from this segment in 2007. UPS is working at top speed to improve service levels in this segment, and is shifting its thinking from "filling up empty aircraft to effectively managing space available."
The US Package segment had a good quarter earning $1.21 billion on $7.4 billion in revenue. Daily ground volume increased 3.6%. Next Day Air shipment volume rose 1.0%. Total revenue per package gained 3.4% UPS has tentaively settled a lawsuit in California for $87 milion, while realizing $81 million in savings from reduced workmen comp. claims.
The International Package segment saw a 22% jump in profits, from $318 million in Q3 2005, to $387 million in Q3 2006. Revenue for Q3 2006 totaled $2.25 billion. YTD volume growth in this segment is 12%. Average daily package volume is 1.8 million. Total package volume grew 20%. UPS opened its first retail centers in China and plans to expand from its center of operations in Shanghai. UPS also concluded a 5-year deal to deliver Italian Post's international express mail.
Even accounting for fluctuations in fuel prices, CEO Eskew still expects full year diluted EPS growth of 11%. UPS is forecasting a good holiday shopping and shipping season both domestically and internationally.