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| UPS > SEC Filings for UPS > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
Revenue, Volume and Revenue Per Piece
The following tables set forth information showing the change in revenue,
average daily package volume, and average revenue per piece, both in dollars or
amounts and in percentage terms:
Three Months Ended
September 30, Change
2009 2008 $ %
Revenue (in millions):
U.S. Domestic Package:
Next Day Air $ 1,348 $ 1,696 $ (348 ) (20.5 )%
Deferred 664 818 (154 ) (18.8 )
Ground 4,856 5,327 (471 ) (8.8 )
Total U.S. Domestic Package 6,868 7,841 (973 ) (12.4 )
International Package:
Domestic 536 598 (62 ) (10.4 )
Export 1,770 2,165 (395 ) (18.2 )
Cargo 116 186 (70 ) (37.6 )
Total International Package 2,422 2,949 (527 ) (17.9 )
Supply Chain & Freight:
Forwarding and Logistics 1,250 1,619 (369 ) (22.8 )
Freight 509 598 (89 ) (14.9 )
Other 104 106 (2 ) (1.9 )
Total Supply Chain & Freight 1,863 2,323 (460 ) (19.8 )
Consolidated $ 11,153 $ 13,113 $ (1,960 ) (14.9 )%
#
Average Daily Package Volume (in thousands):
U.S. Domestic Package:
Next Day Air 1,144 1,117 27 2.4 %
Deferred 856 859 (3 ) (0.3 )
Ground 10,287 10,971 (684 ) (6.2 )
Total U.S. Domestic Package 12,287 12,947 (660 ) (5.1 )
International Package:
Domestic 1,207 1,106 101 9.1
Export 767 792 (25 ) (3.2 )
Total International Package 1,974 1,898 76 4.0
Consolidated 14,261 14,845 (584 ) (3.9 )%
Operating days in period 65 64
$
Average Revenue Per Piece:
U.S. Domestic Package:
Next Day Air $ 18.13 $ 23.72 $ (5.59 ) (23.6 )%
Deferred 11.93 14.88 (2.95 ) (19.8 )
Ground 7.26 7.59 (0.33 ) (4.3 )
Total U.S. Domestic Package 8.60 9.46 (0.86 ) (9.1 )
International Package:
Domestic 6.83 8.45 (1.62 ) (19.2 )
Export 35.50 42.71 (7.21 ) (16.9 )
Total International Package 17.97 22.75 (4.78 ) (21.0 )
Consolidated $ 9.90 $ 11.16 $ (1.26 ) (11.3 )%
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Nine Months Ended
September 30, Change
2009 2008 $ %
Revenue (in millions):
U.S. Domestic Package:
Next Day Air $ 4,044 $ 4,982 $ (938 ) (18.8 )%
Deferred 2,009 2,412 (403 ) (16.7 )
Ground 14,553 15,896 (1,343 ) (8.4 )
Total U.S. Domestic Package 20,606 23,290 (2,684 ) (11.5 )
International Package:
Domestic 1,478 1,803 (325 ) (18.0 )
Export 5,133 6,332 (1,199 ) (18.9 )
Cargo 297 521 (224 ) (43.0 )
Total International Package 6,908 8,656 (1,748 ) (20.2 )
Supply Chain & Freight:
Forwarding and Logistics 3,630 4,817 (1,187 ) (24.6 )
Freight 1,470 1,707 (237 ) (13.9 )
Other 306 319 (13 ) (4.1 )
Total Supply Chain & Freight 5,406 6,843 (1,437 ) (21.0 )
Consolidated $ 32,920 $ 38,789 $ (5,869 ) (15.1 )%
#
Average Daily Package Volume (in thousands):
U.S. Domestic Package:
Next Day Air 1,171 1,166 5 0.4 %
Deferred 878 882 (4 ) (0.5 )
Ground 10,424 11,036 (612 ) (5.5 )
Total U.S. Domestic Package 12,473 13,084 (611 ) (4.7 )
International Package:
Domestic 1,128 1,111 17 1.5
Export 757 789 (32 ) (4.1 )
Total International Package 1,885 1,900 (15 ) (0.8 )
Consolidated 14,358 14,984 (626 ) (4.2 )%
Operating days in period 192 192
$
Average Revenue Per Piece:
U.S. Domestic Package:
Next Day Air $ 17.99 $ 22.25 $ (4.26 ) (19.1 )%
Deferred 11.92 14.24 (2.32 ) (16.3 )
Ground 7.27 7.50 (0.23 ) (3.1 )
Total U.S. Domestic Package 8.60 9.27 (0.67 ) (7.2 )
International Package:
Domestic 6.82 8.45 (1.63 ) (19.3 )
Export 35.32 41.80 (6.48 ) (15.5 )
Total International Package 18.27 22.30 (4.03 ) (18.1 )
Consolidated $ 9.87 $ 10.92 $ (1.05 ) (9.6 )%
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The following table sets forth information showing the change in UPS Freight's less-than-truckload revenue, shipments, and weight hauled, both in dollars or amounts and in percentage terms:
Three Months Ended
September 30, Change
2009 2008 $ %
LTL revenue (in millions) $ 474 $ 562 $ (88 ) (15.7 )%
LTL revenue per LTL hundredweight $ 17.91 $ 19.06 $ (1.15 ) (6.0 )%
LTL shipments (in thousands) 2,599 2,646 (47 ) (1.7 )%
LTL shipments per day (in thousands) 40.6 41.3 (0.7 ) (1.7 )%
LTL gross weight hauled (in millions of pounds) 2,647 2,949 (302 ) (10.2 )%
LTL weight per shipment (in pounds) 1,019 1,115 (96 ) (8.6 )%
Operating days in period 64 64
Nine Months Ended
September 30, Change
2009 2008 $ %
LTL revenue (in millions) $ 1,369 $ 1,610 $ (241 ) (15.0 )%
LTL revenue per LTL hundredweight $ 17.49 $ 18.93 $ (1.44 ) (7.6 )%
LTL shipments (in thousands) 7,553 7,703 (150 ) (1.9 )%
LTL shipments per day (in thousands) 39.5 40.1 (0.6 ) (1.5 )%
LTL gross weight hauled (in millions of pounds) 7,824 8,508 (684 ) (8.0 )%
LTL weight per shipment (in pounds) 1,036 1,105 (69 ) (6.2 )%
Operating days in period 191 192
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Operating Profit and Operating Margin
The following tables set forth information showing the change in operating
profit, both in dollars (in millions) and in percentage terms, as well as the
operating margin for each reporting segment:
Three Months Ended
September 30, Change
2009 2008 $ %
Reporting Segment
U.S. Domestic Package $ 514 $ 1,117 $ (603 ) (54.0 )%
International Package 313 386 (73 ) (18.9 )%
Supply Chain & Freight 102 129 (27 ) (20.9 )%
Consolidated Operating Profit $ 929 $ 1,632 $ (703 ) (43.1 )%
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Three Months Ended
September 30,
2009 2008
Reporting Segment
U.S. Domestic Package 7.5 % 14.2 %
International Package 12.9 % 13.1 %
Supply Chain & Freight 5.5 % 5.6 %
Consolidated Operating Margin 8.3 % 12.4 %
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Nine Months Ended
September 30, Change
2009 2008 $ %
Reporting Segment
U.S. Domestic Package $ 1,374 $ 2,975 $ (1,601 ) (53.8 )%
International Package 900 1,214 (314 ) (25.9 )%
Supply Chain & Freight 268 390 (122 ) (31.3 )%
Consolidated Operating Profit $ 2,542 $ 4,579 $ (2,037 ) (44.5 )%
Nine Months Ended
September 30,
2009 2008
Reporting Segment
U.S. Domestic Package 6.7 % 12.8 %
International Package 13.0 % 14.0 %
Supply Chain & Freight 5.0 % 5.7 %
Consolidated Operating Margin 7.7 % 11.8 %
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U.S. Domestic Package Operations
U.S. domestic package revenue decreased $973 million, or 12.4%, for the quarter ($2.684 billion, or 11.5%, year-to-date), due to decreases in average daily package volume and revenue per piece.
Ground volume declined 6.2% during the quarter (5.5% year-to-date), primarily as a result of weakness in the U.S. economy. Continued declines in industrial production and retail sales have reduced overall demand in the U.S. small package market, resulting in decreased package volume in our domestic package operations. Our air product volume was relatively stronger, as Next Day Air volume increased 2.4% and Deferred air volume decreased only 0.3% (growth of 0.4% and a decline of 0.5%, respectively, year-to-date). While our air products were also impacted by the economic recession, air volume benefitted from market share gains, as a result of the recent departure of a competitor in the U.S. market.
The decrease in overall revenue per piece of 9.1% (7.2% year-to-date) resulted primarily from lower fuel surcharge rates, lower package weights, and unfavorable shifts in product mix. Next Day Air and Deferred revenue per piece decreased 23.6% and 19.8%, respectively (19.1% and 16.3%, respectively, year-to-date), and were negatively affected by a 29.1% decline in the fuel surcharge rate for air products (discussed further below). Additionally, the revenue per piece decline for our air products was impacted by lower average package weights and a mix shift toward lower yielding products, reflecting the economic recession in the United States. Ground revenue per piece decreased 4.3% (3.1% year-to-date), primarily due to a lower fuel surcharge rate (down 6.8% in the third quarter of 2009 compared to 2008). The factors decreasing revenue per piece for our ground and air products were partially offset by an increase in base rates that took effect during the first quarter.
In October 2008, we announced a base rate increase and a change in the fuel surcharge that took effect on January 5, 2009. We increased the base rates 6.9% on UPS Next Day Air, UPS 2nd Day Air, and UPS 3 Day Select, and 5.9% on UPS Ground. Other pricing changes included a $0.10 increase in the residential surcharge, and an increase of $0.10 in the delivery area surcharge on both residential and commercial services to certain ZIP codes. These rate changes are customary and occur on an annual basis.
We also modified the fuel surcharge on domestic air services by reducing the index used to determine the fuel surcharge by 2%. This fuel surcharge continues to be based on the U.S. Energy Department's Gulf Coast spot price for a gallon of kerosene-type jet fuel. Based on published rates, the average fuel surcharge on domestic air products was 4.76% in the third quarter of 2009, a decrease from the 33.81% in the third quarter of 2008, due to the significant decrease in jet fuel prices, in addition to the 2% reduction in the index. On a year-to-date basis, the average fuel surcharge on domestic air products declined to 2.94% in 2009 from 25.64% in 2008. The ground fuel surcharge rate continues to fluctuate based on the U.S. Energy Department's On-Highway Diesel Fuel Price. Based on published rates, the average fuel surcharge on domestic ground products decreased to 3.32% in the third quarter of 2009 from 10.07% in the third quarter of 2008, due to significantly lower diesel fuel prices. On a year-to-date basis, the average fuel surcharge on domestic ground products decreased to 3.13% in 2009 from 7.91% in 2008. Total domestic fuel surcharge revenue, net of the impact of hedging, decreased by $716 million in the third quarter of 2009 compared with the same period of 2008 ($1.491 billion year-to-date), primarily due to the lower fuel surcharge rates discussed above, as well as the decline in volume for our air and ground products.
U.S. Domestic Package operating profit decreased $603 million, or 54.0%, in the third quarter of 2009 compared with the same period in 2008 ($1.601 billion, or 53.8%, year-to-date). Operating profit in 2009 was adversely impacted by the U.S. economic recession, decreased network efficiencies due to the decline in volume, changes in package characteristics, and a shift in product mix away from our premium services. Operating profit was also negatively impacted as we incurred a larger decline in fuel surcharge revenue compared with the decline in fuel expense. Additionally, year-to-date operating profit was adversely impacted by a $181 million impairment charge on our McDonnell-Douglas DC-8-71 and DC-8-73 aircraft fleets in the first quarter of 2009 (discussed further in the "Operating Expenses" section).
International Package Operations
International Package revenue declined $527 million, or 17.9%, for the quarter ($1.748 billion, or 20.2%, year-to-date), primarily as a result of a decrease in total revenue per piece along with a decline in export volume, but partially offset by an increase in non-U.S. domestic package volume.
Export volume declined 3.2% for the quarter (4.1% year-to-date), primarily due to weakness in the Asia and U.S. export lanes, as the worldwide economic recession and slowdown in world trade more than offset market share gains. Transborder export volume was relatively stronger within the European Union and North American trade areas. Non-U.S. domestic volume increased 9.1% for the quarter (1.5% year-to-date), largely due to the acquisition of Unsped Paket Servisi San ve Ticaret A.S. in Turkey, as well as volume growth in the United Kingdom, Germany, France, Poland and Canada.
Overall revenue per piece decreased 21.0% for the quarter (18.1% year-to-date), primarily as a result of foreign currency exchange rate movements, decreased fuel surcharge rates, and shifts in product mix. Export revenue per piece decreased 16.9% for the quarter (15.5% year-to-date), largely due to the adverse impact of currency exchange rates, lower fuel surcharge rates, and the relatively stronger volume performance of lower revenue per piece transborder products, but was partially offset by base rate increases that took effect in the first quarter of 2009. Domestic revenue per piece decreased 19.2% for the quarter (19.3% year-to-date), which was primarily caused by adverse currency exchange rate fluctuations (currency-adjusted domestic revenue per piece declined 11.6% for the quarter), as well as the impact of lower fuel surcharge rates. Total average revenue per piece decreased 17.5% for the quarter on a currency-adjusted basis (12.9% year-to-date), and the overall quarterly change in segment revenue was negatively affected by $119 million due to currency fluctuations, net of hedging activity ($484 million year-to-date).
On January 5, 2009, we increased the base rates 6.9% for international shipments originating in the United States (Worldwide Express, Worldwide Express Plus, UPS Worldwide Expedited and UPS International Standard service). Rate changes for shipments originating outside the U.S. are made throughout the year and vary by geographic market.
Additionally, we modified the fuel surcharge on certain U.S.-related international air services by reducing the index used to determine the fuel surcharge by 2%. The fuel surcharge for products originating outside the United States continues to be indexed to fuel prices in our different international regions, depending upon where the shipment takes place. Total international fuel surcharge revenue decreased by $292 million in the third quarter ($682 million year-to-date), due to lower fuel surcharge rates caused by decreased fuel prices as well as a decrease in international air volume.
International Package operating profit decreased $73 million, or 18.9%, in the third quarter of 2009 compared with the same period of 2008 ($314 million, or 25.9%, year-to-date). The decline in operating profit was affected by a shift in product mix away from our premium services, volume declines in some of the longer export trade lanes, and a larger decline in fuel surcharge revenue compared with the decline in fuel expense. The change in operating profit was negatively affected by $28 million during the quarter due to currency exchange rate fluctuations, net of hedging activity ($26 million year-to-date).
Supply Chain & Freight Operations
Supply Chain & Freight revenue decreased $460 million, or 19.8%, for the quarter ($1.437 billion, or 21.0%, year-to-date). Forwarding and logistics revenue decreased $369 million, or 22.8%, for the quarter ($1.187 billion, or 24.6%, year-to-date), and was impacted by weakness in demand for freight forwarding due to global economic weakness and declines in international trade. Forwarding revenue declined in all major transportation modes, including domestic and international air freight and ocean freight, and was impacted by lower volumes, lower fuel surcharges, and lower security and other accessorial charges. Additionally, the overall change in forwarding and logistics revenue was negatively affected by $19 million during the quarter ($145 million year-to-date) due to the strengthening of the U.S. Dollar against foreign currencies.
UPS Freight revenue declined $89 million, or 14.9%, for the quarter ($237 million, or 13.9%, year-to-date), primarily due to lower fuel surcharge rates and a decline in average daily LTL shipments. Total LTL weight per shipment declined 8.6% for the quarter (6.2% year-to-date), reflecting the weak LTL market and the ongoing economic recession in the United States in 2009. Average LTL shipments per day also declined 1.7% for the quarter (1.5% year-to-date), as market share gains were more than offset by the impact of the weak economy.
LTL revenue per hundredweight decreased 6.0% for the quarter (7.6% year-to-date), primarily as a result of the lower fuel surcharge rates, as total fuel surcharge revenue declined $62 million for the quarter ($175 million year-to-date) primarily resulting from lower diesel fuel prices. However, this decline was partially offset by an increase in base prices that took effect in the first quarter of 2009. On January 5, 2009, UPS Freight increased minimum charge, LTL, and TL rates an average of 5.9%, covering non-contractual shipments in the United States and Canada.
The other businesses within Supply Chain & Freight, which include our retail franchising business and our financial business, experienced a decline in revenue of 1.9% during the quarter (4.1% year-to-date). This decline in revenue was primarily in our financial business, and was impacted by lower interest rates and decreased loan volume.
Operating profit for the Supply Chain & Freight segment decreased by $27 million, or 20.9%, for the quarter ($122 million, or 31.3%, year-to-date), primarily due to lower operating profit in the forwarding and logistics business. The lower operating profit in the forwarding and logistics unit was impacted by the weak demand for forwarding services, as well as the loss incurred on the sale of some non-core European logistics operations. However, the operating margin in this business experienced only a small decline (excluding the loss on sale) as costs were reduced commensurate with the decline in revenues.
Our UPS Freight unit reported improved profitability for the third quarter, due to a reduction in vacation accruals resulting from modifications in vacation policies and changes in the workforce coverage of our individual plans. Excluding this reduction in vacation liabilities, the UPS Freight unit reported a small operating loss due to the economic recession and difficult LTL market in the United States.
The combined operating income for all of our other businesses in this segment increased during the quarter and year-to-date periods. The year-to-date increase was primarily driven by a gain on sale of substantially all of our international Mail Boxes Etc operations during the second quarter. The change in operating profit for the segment was also negatively affected by $3 million in the quarter ($15 million year-to-date) due to the strengthening of the U.S. Dollar against foreign currencies.
Operating Expenses
Consolidated operating expenses decreased by $1.257 billion, or 10.9%, for the quarter ($3.832 billion, or 11.2%, year-to-date), of which approximately $107 million ($588 million year-to-date) was due to currency fluctuations in our International Package and Supply Chain & Freight segments.
Compensation and benefits expense decreased by $84 million, or 1.3%, for the quarter ($444 million, or 2.3%, year-to-date), and was impacted by several items. A large component of this decrease was related to employee payroll costs, as union labor hours declined approximately 7.1% as a result of lower U.S. Domestic Package volume, and management payroll declined as a result of a reduction in the total number of management employees through attrition combined with a wage freeze. Benefits expense increased due to higher employee health and welfare program costs, which were impacted by higher union contribution rates, and increased pension expense. Pension expense increases resulted from higher union contribution rates for multiemployer pension plans, combined with increased interest costs, a decrease in our expected return on plan assets and the amortization of actuarial losses for company-sponsored plans (see Note 6 to the unaudited consolidated financial statements). The increase in interest costs was impacted by changes in discount rates, while the decrease in expected return on plan assets and the actuarial losses were primarily due to the negative asset returns experienced in 2008.
Repairs and maintenance expense declined $24 million, or 8.3%, for the quarter ($76 million, or 8.5%, year-to-date), largely due to reduced vehicle maintenance expense resulting from a reduction in miles driven. Depreciation and . . .
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