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COMPETITION WATCH: Strong global volume growth produces 12% gain in earnings for UPS

ATLANTA, Ga -- UPS has reported solid revenue and profit growth for its most recent quarter on a healthy 5% rise in...


ATLANTA, Ga — UPS has reported solid revenue and profit growth for its most recent quarter on a healthy 5% rise in global small package volume.

Consolidated revenue for the quarter ending Sept. 30, 2006, increased 10.5% and diluted earnings per share increased 11.6% to $0.96. The growth in small package volume translated to 721,000 additional packages each day in the UPS network.

The company also said it is taking significant steps to improve the profitability of its forwarding and logistics business, confirming it will eliminate 20% of the non-operating expense in the business unit.
“UPS is moving forward with confidence,” said Chairman and CEO Mike Eskew. “Our small package business continues to show strength across all segments and we are taking the steps necessary to put our supply chain business on the right track after a disappointing performance.”

Operating profit for the quarter was reduced by an $87 million pre-tax charge for a tentative legal settlement involving a wage-and-hour case in California. In addition, there was a $52 million reduction in income tax expense related to favorable developments with certain international tax issues. The combination of these two items had no effect on the $0.96 diluted earnings per share.

For the first nine months, UPS generated $4 billion in cash from operations and:
? Purchased 26.5 million shares, reducing total shares outstanding by 2.1%.
? Paid $1.6 billion in dividends.
? Invested $2.3 billion in capital expenditures.
?
The company’s cash position declined from the previous end-of-quarter due primarily to the funding of its UPS-sponsored pension plans in the amount of $1.5 billion.

All levels of small package service posted gains. Daily ground volume increased 3.6%, while average daily volume for Next Day Air rose 1.0% and deferred air volume climbed 3.4%. Total revenue per piece remained firm with a gain of 3.4%.

This segment was adversely impacted by the $87 million tentative legal settlement previously mentioned. In addition, the unit experienced a positive impact from a reduction in worker’s compensation claims expense.

Total international package volume grew 19.9%. Export volume increased 13.6%. Non-U.S. domestic volume was up 24.2% aided by the LYNX Express acquisition.

In the third quarter, the company opened its first retail centers in China. The launch of the UPS Express centers in Shanghai’s central business district is the latest in a series of strategic initiatives to expand UPS’s operations and brand presence in China.

Additionally, UPS announced a new partnership with the Italian Post. Under the five-year agreement, UPS will deliver the Italian post office’s international express volume.

The forwarding and logistics unit is in the process of implementing cost and revenue initiatives that will improve its performance. UPS Freight results were below expectations due to a revenue shortfall and cost pressures related to the consolidation of its western U.S. unit, Motor Cargo, Inc., into the UPS Freight network.

“We still expect full year diluted earnings per share growth of about 11% despite the performance in the supply chain and freight segment,” said Scott Davis, UPS’s chief financial officer. “The small package business should be strong in the fourth quarter as we expect international deliveries and the U.S. holiday shipping period to be solid. We also anticipate modest improvement from the supply chain and freight segment over third quarter results.”


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