Not only was the economy to be blamed, but the company was also negatively impacted by an $896m charge as it withdrew from the New England Teamsters and Trucking Industry Pension Fund, affecting 10,200 employees.
The US Domestic Package division 's revenue increased 1% over the prior-year period to $7.86bn, due to a 3.7% gain in daily package volume. A good bit of the increase continued to come from ecommerce. Ground and Deferred volumes were up 3.0% and 9.3%, respectively while Next Day Air volume expanded 5.7% over the prior-year period. Because of an adjustment, operating profit declined almost 88% to $129m. Without the adjustment, operating profit would have declined only 2.1% to $1,025m. Interesting to note that Next Day Air enjoyed such a strong volume increase despite revenue falling just less than 1%. Deferred and Ground revenues, however, did note positive revenue gains of 2.1% and 1.6% respectively.
The International division reported its highest third quarter in history generating $449m in operating profit, up 7.7% over the prior-year period. Export package growth, network changes and currency translation contributed to this improvement. It appears UPS was among the aircargo providers that benefited from high-tech new product launches during the quarter as it noted growth in Asian export package volume. It will be interesting to see if this was just a one-off jump in growth or is a recovery in Asian exports underway?
For the International division, revenue declined 3.7% with Domestic International declining 9.1% and Export International declining 2.5%. The sharp decline in Domestic International may possibly be attributed to the intra-European slowdown.
While revenue declined 3% to $2.27bn and operating profit declined 7.4% to $188m, the Supply Chain and Freight division operating margin remained good at 8.3%. Forwarding continued to be affected by a negative global market while Distribution’s investments in healthcare capabilities and infrastructure also negatively impacted the division’s operating margin. During the quarter, three new healthcare distribution facilities were opened in Sydney, Australia, Shanghai and Hangzhou, China. Not only has Freight Forwarding been struggling for a while, but the continued build out of UPS' healthcare infrastructure seems to have also been weighing negatively on this division despite a 20% increase in healthcare revenue for the quarter. The healthcare logistics segment segment is experiencing increasing competition, hopefully these investments within the healthcare segment will payoff for the group soon.
UPS faces not only global economic challenges but the TNT acquisition will also weigh on the company. It is probable that UPS will have to sell off parts of the business in order to comply with the EU requests. If this is to happen, it may prove to be a distraction in which competitors will take advantage - not only in Europe but also elsewhere such as Asia and the US. Not only that, but the added financial burden of the acquisition and the eventual integration process could also take a toll on the company.
Still, going forward, the company remains cautiously optimistic. For the fiscal year, the company narrowed its adjusted earnings guidance to a range of $4.55 to $4.65 per share from the prior forecast of $4.50 to $4.70 per share.
"While there is some uncertainty around the magnitude of the
holiday shopping season, we are confident in UPS's ability to deliver,"
Kuehn continued. "As a result, we enhanced our guidance by narrowing the
range, maintaining our previous midpoint," CFO Kurt Kuehn noted.
