UPS (NYSE:UPS) today announced third quarter 2012 adjusted diluted
earnings per share of $1.06. The International segment led the way with
its highest third quarter in history generating $449 million in
operating profit, up 7.7% over the prior-year period.
UPS updated its full-year 2012 guidance for adjusted diluted earnings per share to a range of $4.55 to $4.65, reflecting greater confidence in fourth quarter execution.
On a reported basis, third quarter 2012 earnings per share were $0.48.
In August, the company announced a decision to restructure pension liabilities for certain employees. As a result, UPS recorded an after-tax, non-cash charge of $559 million during the quarter.
"Our results were achieved in an environment of slowing global trade and changing market dynamics," said Scott Davis, UPS chairman and CEO. "This not only highlights the flexibility of our business model; it illustrates the breadth of the UPS product portfolio in meeting the needs of customers."
During the quarter, UPS delivered 15.5 million packages per day, a 2.9% increase over the prior-year period.
For the nine months ending Sept. 30, UPS generated free cash flow in excess of $3.6 billion. The company repurchased 18.5 million shares for approximately $1.4 billion and paid dividends totaling $1.6 billion, a 9.6% increase per share over the prior year.
Capitalizing on credit market conditions, during the quarter UPS issued $1.75 billion of debt. Proceeds will be used to pay notes that mature in January 2013. The company ended the period with $9.0 billion in cash and marketable securities. The primary uses of these funds will be the acquisition of TNT Express and debt repayment.
U.S. Domestic revenue increased $94 million over the prior-year period, driven by a 3.7% gain in daily package volume. Adjusted operating profit declined $21 million, impacted negatively by one less operating day and the timing of the fuel surcharge.
On a reported basis, operating profit was $129 million as a result of the pension restructuring previously mentioned.
Rapid e-commerce growth drove gains in daily volume, with Ground and Deferred up 3.0% and 9.3%, respectively. Next Day Air volume expanded 5.7% over the prior-year period, as retailers continued to utilize UPS Next Day Air Saver® to differentiate their offerings.
Base rate improvements were more than offset by lower fuel surcharges, and changes in product and customer mix. Consequently, revenue per package declined 0.8% from the same quarter last year.
The International segment produced operating profit of $449 million, its highest third quarter ever. Operating margin was up 170 basis points over the prior-year period to 15.3%. Export package growth, network changes and currency translation contributed to this improvement.
Revenue declined 3.7%, as the impact from lower fuel surcharges and currency exceeded the benefit from the 1.2% growth in daily Export volume.
For the first time in several quarters, Asia exhibited growth in Export package volume, benefitting from product launches and easier comparisons. Although the rate of growth in Europe has slowed, it remained positive.
Supply Chain & Freight
Operating margin for the Supply Chain and Freight segment remained strong at 8.3%. Operating profit was down $15 million, as declines in Forwarding were partially offset by improvement in UPS Freight.
The Freight Forwarding unit was pressured by overcapacity in the market, especially out of Asia. Revenue decreased as lower yields offset modest tonnage gains.
Although the Distribution unit experienced strong revenue growth, investments in healthcare capabilities and infrastructure weighed on margin expansion. Recently, UPS opened three new healthcare distribution facilities in Sydney, Australia and in Shanghai and Hangzhou, China.
UPS Freight revenue increased 3.6% as shipments per day were up slightly. LTL revenue per hundredweight and gross weight hauled improved over the prior year period, resulting in operating margin expansion.
"UPS performance this quarter reflects the ability of our global network to adapt to soft macro conditions," said Kurt Kuehn, UPS chief financial officer.
"While there is some uncertainty around the magnitude of the holiday shopping season, we are confident in UPS's ability to deliver," Kuehn continued. "As a result, we enhanced our guidance by narrowing the range, maintaining our previous midpoint. We anticipate 2012 adjusted diluted earnings per share to be within a range of $4.55 to $4.65, an increase of 5%-to-7% over 2011 adjusted results."
UPS routinely posts investor announcements on its web site -- www.investors.ups.com -- and encourages those interested in the company to check there frequently.
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