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Rail News: Financials

UPS reports volume, earnings declines

The slowing world economy is taking its toll on the world's largest package delivery company — and one of North American railroads' largest intermodal customers.

For the quarter ended Sept. 30, United Parcel Service (UPS) reported net income of $970 million, a 10.1 percent decline from the $1.08 billion reported during the same 2007 period. Consolidated revenue per piece increased 8.1 percent while package volume per day declined 2.6 percent. Operating profit declined 7 percent, to $1.63 billion, compared with adjusted operating profit during the same period last year. "Economic deceleration" and the high cost of fuel, which drove product mix changes, contributed to the decline, according to an Oct. 23 statement.

Some of the particulars:

Domestic volume's down. Average daily U.S. domestic volume declined 3.4 percent, with "air products" falling 6.4 percent and "ground volume," 2.8 percent. Even so, domestic revenue per piece increased 5.8 percent, led by UPS Next Day Air® rising 11 percent as a result of higher fuel surcharges. The results also were "positively impacted" by about $90 million due to the two-month lag in fuel surcharges, UPS said.

International and supply-chain business is still strong. Export volume per day increased 7 percent, despite decelerating economic growth in most areas of the world. Revenue per piece rose 11.6 percent, aided by higher fuel surcharges and favorable foreign currency exchange rates. In all, unit segments contributed to revenue growth of 9 percent. Operating profit increased more than 30 percent on 2007 adjusted results.

"UPS managed the business well in this very tough economic climate," said UPS Chairman and Chief Executive Officer Scott Davis in a prepared statement. "We continue to see growth in our international and supply chain businesses while maintaining our focus on cost control and revenue management throughout our organization."

For example, UPS has reduced its 2008 capital expenditure budget by $200 million to $2.8 billion, and expects to reduce 2009 capital expenditures, said UPS Chief Financial Officer Kurt Kuehn. Job cuts, too, are possible.

"Based on economic forecasts, we anticipate a challenging environment for a number of quarters going forward," he said. "We believe the U.S. consumer will be very conservative with spending this year."

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More News from 10/24/2008