UPS 4Q Earnings Surge 25% on 22% Worldwide Revenue Gain
Record Earnings for 2005 With Strong Cash Flow
ATLANTA, Jan. 26, 2006 - Led by a strong 21.5% gain in worldwide revenue, UPS (NYSE:UPS) today reported net income of $1.05 billion and a 25% increase in diluted earnings per share for the fourth quarter.
For the full year, adjusted earnings per share climbed 19.7% and the company generated $3.5 billion in free cash flow. The 12-month period also produced record volume with UPS delivering 3.75 billion packages in 2005, or an average of 14.8 million per day.
“UPS’s performance in 2005 was exceptional, including a well-executed peak season,” said Mike Eskew, UPS chairman and CEO. “All of our people pulled together to achieve the growth and financial goals we set for ourselves. Our momentum accelerated during each quarter of 2005 and we look forward to more progress in 2006.”
For the quarter ended Dec. 31, 2005, global volume increased 7.9% to a record 16.8 million packages per day. That equates to an additional 1.2 million packages delivered per day. U.S. volume grew 6.2% in total, paced by an 8.5% increase in deferred air volume coupled with a 6.3% increase in Next Day Air® packages. Average daily ground volume in the U.S. rose 5.9%. U.S. volume gains in the fourth quarter were the highest experienced by the company in several years.
Internationally, average daily package volume rose 25.1% to 1.8 million a day. Export volume was again strong with a 15.4% increase reflecting significant gains across all regions of the world.
Revenue for the fourth quarter climbed 21.5% to $11.95 billion, including the impact of acquisitions. Consolidated operating profit increased 42.1% to $1.71 billion. Adjusting fourth quarter 2004 results for an aircraft impairment charge and a charge to pension expense, operating profit jumped 24.3%.
Earnings per diluted share were $0.95 for the quarter compared to $0.76 reported in the prior year. Adjusting for the after-tax effects of the items mentioned above and credits to income tax expense recognized in 2004, diluted earnings per share rose 15.9% from $0.82 a year ago. The company increased its effective tax rate in the fourth quarter of 2005, which reduced earnings per diluted share by $0.02.
Highlights by segment for the fourth quarter included:
U.S. domestic package revenue grew 8.9% during the period to $7.82 billion. Boosted by a strong holiday season, all products experienced strong volume growth. Excluding the impact of the 2004 aircraft impairment and pension charges, operating profit rose 21.9% to $1.24 billion. Pricing remained firm. The U.S. segment’s operating margin increased to 15.8%.
International package revenue increased 18.3% to $2.22 billion. Excluding the impact of the 2004 aircraft impairment charge, operating profit climbed 25.3% to $431 million. Export volume grew 15.4% with double-digit growth across Asia, Europe and the U.S. International domestic volume climbed 31.7% aided by acquisitions in Europe during the year. The international operating margin increased to 19.4%.
Revenue for the supply chain and freight segment jumped 146% to $1.91 billion, reflecting the positive impacts of both the Menlo Worldwide Forwarding and Overnite acquisitions. Operating profit climbed 139% to $43 million. Revenue at Overnite for its first full quarter as part of UPS totaled $483 million.
For the full year ended Dec. 31, 2005, diluted earnings per share totaled $3.47 compared to $2.93 per diluted share in 2004. Adjusting for the effects of the impairment and pension charges and tax credits recorded in 2004, diluted earnings per share increased 19.7%, up from $2.90 in 2004. This was at the high end of the company’s 18-to-20% anticipated growth range, the second consecutive year of nearly a 20% gain in adjusted earnings. Revenue increased 16.4% to a record $42.6 billion while operating profit rose 23.1% to $6.14 billion. Net income for 2005 totaled $3.87 billion, up 16.1% compared to the $3.33 billion reported in 2004. Adjusting 2004’s amounts for the effects of the items described above, operating profit increased by 19% and net income was up 17.2%.
“The year was one of significant growth, margin expansion and excellent cash flow,” said Chief Financial Officer Scott Davis. “We’re optimistic about 2006 and confident in our ability to continue producing the type of consistent earnings growth for which we’re known. We will continue to invest in all three of our businesses and execute strategies in each segment that will enable us to capitalize on the growth in global commerce.”
For the first quarter of 2006, UPS is projecting diluted earnings per share in a range of $0.85 to $0.89 compared to the $0.78 reported during the prior-year period. For the full year of 2006, Davis reiterated UPS’s expectation of an increase in diluted earnings per share of 11-to-16%, consistent with the company’s historical compound annual growth rate.
UPS is the world’s largest package delivery company and a global leader in supply chain services, offering an extensive range of options for synchronizing the movement of goods, information and funds. Headquartered in Atlanta, Ga., UPS serves more than 200 countries and territories worldwide. UPS’s stock trades on the New York Stock Exchange (UPS) and the company can be found on the Web at UPS.com.
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EDITOR’S NOTE: UPS CFO Scott Davis will discuss fourth quarter results with investors and analysts during a conference call later today at 10:00 a.m. EST. That conference call is open to listeners through a live Webcast. To access the call, go to UPS Investor Relations and click on “Earnings Webcast.”
We supplement the reporting of our financial information determined under generally accepted accounting principles (GAAP) with certain non-GAAP financial measures, including, as applicable, “as adjusted” operating profit, operating margin, pre-tax income, net income and earnings per share. We believe that these adjusted measures provide meaningful information to assist investors and analysts in understanding our financial results and assessing our prospects for future performance. We believe these adjusted financial measures are important indicators of our recurring operations because they exclude items that may not be indicative of or are unrelated to our core operating results, and provide a better baseline for analyzing trends in our underlying businesses. Furthermore, we use these adjusted financial measures to determine awards for our management personnel under our incentive compensation plan. We also provide the amount of our free cash flow to supplement our cash flow determined under GAAP. We define free cash flow as net cash from operating activities adjusted for capital expenditures, proceeds from disposals of property, plant and equipment, net change in finance receivables and other investing activities. We believe free cash flow is an important measure in assessing the generation of cash for discretionary investments and dividends.
In the third quarter of 2004, we recorded a $99 million reduction in income tax expense due to the resolution of various tax matters. In the fourth quarter of 2004, we recorded a $110 million pre-tax impairment charged related to aircraft; a $63 million pre-tax charge to pension expense and a net credit to income tax expense of $43 million. We presented 2004 operating profit, net income and earnings per share excluding the impact of these items as we believe these adjusted measures better enable shareowners to focus on period-over-period operating performance. The underlying matters that produced the impairment charge, the charge to pension expense and the tax benefits were unique and we believe they have no bearing on future anticipated results.
Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names. These adjusted financial measures should not be considered in isolation or as a substitute for GAAP operating profit, operating margin, net income and earnings per share, the most directly comparable GAAP financial measures. These non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the preceding reconciliations to corresponding GAAP financial measures, provide a more complete understanding of our business. We strongly encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.
Except for historical information contained herein, the statements made in this release constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements, including statements regarding the intent, belief or current expectations of UPS and its management regarding the company’s strategic directions, prospects and future results, involve certain risks and uncertainties. Certain factors may cause actual results to differ materially from those contained in the forward-looking statements, including economic and other conditions in the markets in which we operate, governmental regulations, our competitive environment, strikes, work stoppages and slowdowns, increases in aviation and motor fuel prices, cyclical and seasonal fluctuations in our operating results, and other risks discussed in the company’s Form 10-K and other filings with the Securities and Exchange Commission, which discussions are incorporated herein by reference.
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