UPS profits sink 55.7%

UPS profits sink 55.7%    Less spending by consumers and businesses trying to conserve money during difficult economic times led to a 55.7 percent drop in first quarter profits at UPS, the integrated logistics and package delivery company announced Wednesday.
   Revenue fell 13.7 percent to $10.9 billion from $12.7 billion.
   UPS earned $401 million in the quarter ended March 31, compared to $906 million in the same three-month period in 2008. Operating profit was off 52 percent to $718 million.
   Diluted earnings per share plunged to 40 cents versus 87 cents a year ago.
   FedEx, by comparison, experienced a 75 percent drop in profits in its most recent quarter.
   UPS results were impacted by $181 million non-cash impairment charge associated with retiring UPS's entire fleet of 44 aging DC-8 aircraft, Adjusting for the charge, UPS said, earnings were 52 cents per share.
   Consolidated average daily volume totaled 14.5 million packages, a 3.9 percent decline. Average revenue per piece declined 6.9 percent reflecting changes in product mix, reduced fuel surcharges, weight per package and currency exchanges.
   Operating profit was down 60 percent in the domestic package business, 30 percent in international, and 64.6 percent in supply chain and freight.
   The domestic package segment's operating profit sank to $383 million from $959 million, but also carried the aircraft impairment charge on its books. Operating margin fell to 5.5 percent (8.1 percent adjusted) from 12.4 percent.
   The drop-off in demand due to the recession overcame market share gains by UPS due to the departure of DHL from the U.S. domestic ground package market. Volume per day declined 4.3 percent during the quarter with Next Day Air down 0.7 percent, deferred down 1 percent and ground off 5 percent.
   International package margins experienced a more modest decline to 13.1 percent from 15.3 percent, with average daily volume off 1 percent at 1.86 million packages.
   The Supply Chain and Freight unit reported a $40 million operating profit compared to $113 million a year ago. Operating margin declined to 2.3 percent from 5.2 percent, most of which is attributed to the domestic heavyweight trucking business. As the less-than-truckload environment worsened, UPS Freight posted declines in revenue, shipments and tonnage, compared with last year. However, UPS said it experienced month-over-month improvements in each of these categories through the quarter. UPS Freight experienced greater sales traction as more customers adopted its LTL shipping technology, it said.
   UPS officials said they have identified an additional $300 million in cost-cutting initiatives to help the company cope with the decline in business from the recession. UPS also said it is scaling back capital spending by an additional $200 million this year, to just under $2 billion.
   “Economic indicators tell us recovery in the U.S. might begin late this year, but more likely not until 2010,” Chief Financial Officer Kurt Kuehn said. “So we expect the second quarter will be another difficult one. As a result, UPS anticipates earnings per diluted share in a range of 45 cents to 55 cents.'