UPS earnings decline due to economic weakness, fuel costs; supply chain, freight exceed expectations

ATLANTA, Ga. — UPS has reported a 6.7% revenue increase in the second quarter but an 18.3% decline in diluted earnings per share to $0.85 compared to $1.04 the prior year. Increasing fuel costs and a stagnant US economy caused the earnings decline in both domestic and international markets.

For the three months ended June 30, UPS delivered consolidated volume of 959 million packages, essentially unchanged from the second quarter last year. Revenue rose to $13.0 billion and revenue per piece increased 5.9%. Results were negatively affected by a 67% increase in fuel expense, a reduction in premium product volumes and weakness in US imports.

In contrast, the supply chain and freight segment posted a substantial improvement in profitability, the company said. Segment revenue increased almost 11% with operating profit climbing more than 50%. Results were driven by the continued strong performance of the forwarding and logistics businesses. During the quarter, UPS announced an expansion of its logistics campus in Burlington, Ontario, to address healthcare and high-tech customers’ needs.

UPS Freight LTL revenue grew 7.2%, but shipments declined 2.3% as a consequence of the stagnant US economy.

“Although operating conditions in the second quarter were challenging, UPS firmly believes the long-term growth fundamentals for our company and for our industry are very favourable,” said Scott Davis, UPS chairman and CEO. “We are helping our customers manage through this difficult period while doing everything we can inside UPS to adapt to current conditions.”

“Slow US economic activity and fuel price increases hit us and our customers during the quarter,” said Kurt Kuehn, UPS’s chief financial officer. “Even though economists do not predict a recovery until 2009, we anticipate that the second half of 2008 will generate modestly better results than the first half, assuming business conditions do not worsen. Therefore, we are providing earnings-per-share guidance for 2008 within a range of $3.50 to $3.70. This translates to a range of $1.78-to-$1.98 for the second half compared to $1.72 for the first half.”

Kuehn pointed out that comparisons to last year’s results would be more difficult in the third quarter and moderate in the fourth.

“We are taking the necessary steps to control costs, add value for customers and grow our business while adjusting to the realities of today’s challenging environment,” Kuehn added.