UPS Beats Estimates, Gives Positive Outlook

United Parcel Services Inc.’s (UPS) fourth quarter operating earnings per share of 75 cents came in ahead of the Zacks Consensus Estimate of 73 cents and management’s earlier guidance of 58-65 cents. However, this was lower compared to 83 cents recorded in the prior-year quarter.

Results reflected strong performance in the international segment and decreased operating expenses, which was offset by a decline in the revenues and operating margins of the U.S. domestic package and supply, chain and freight segments.

Total revenue decreased 2.5% year-over-year to $12.4 billion. Total operating expenses decreased 6.5% year-over-year to $11.1 billion. Total operating profit increased 56.8% year-over-year to $1.3 billion. Total operating net income decreased 9.1% year-over-year to $757 million.

Domestically, air volume increased with Next Day Air up 2.8% and deferred up 4.3%. However, ground volume per day was down 2.9%. Total US average daily volume decreased 1.9%. Operating margin improved sequentially to 10.1%, the highest in 2009. The 5.2% decline in revenue per piece was driven primarily by lower fuel surcharges and weight declines.

Internationally, average daily volume growth of 11.8% was driven by increases of 3.1% in export and 17.8% in domestic. These gains and strong cost management contributed to an operating margin of 16.7%, the highest since the fourth quarter of 2007.

All regions experienced export volume growth, led by Asia and the U.S. Improvement was driven by a third-quarter acquisition in Turkey along with strong performance in Europe and Canada.

UPS Freight experienced a difficult fourth quarter. Revenue per hundred weights increased, but shipments were flat and tonnage declined.

For full-year 2009, UPS generated revenue of $45.3 billion, down 12% over 2008. Operating earnings per share was $2.14 as compared to $3.50 in 2008. Total reported net income decreased 28.3% year-over-year to $2.2 billion.

Total operating expenses decreased 10.0% year-over-year to $41.5 billion. Total operating profit decreased 56.8% year-over-year to $3.8 billion. UPS delivered 3.8 billion packages, an average of 15.1 million per day, down from 15.5 million in 2008.

At the end of 2009, UPS generated free cash flow of $4.1 billion along with cash and short-term investments of $2.1 billion. Additionally, the company also paid $1.8 billion in dividends and invested $1.6 billion in capital expenditures. UPS repurchased a total of 10.9 million shares for $569 million in 2009.

Business Developments

In the quarter, UPS took the lead in the mobile shipping arena with the introduction of applications for iPhone, iPod and BlackBerry devices. In addition, the company expanded its WorldShip platform with integration of a freight forwarding capability that complements its small package and freight shipping processes.

Recently, UPS also announced it was restructuring the U.S. Domestic Package segment. By leveraging technology and the management skills of its people, the company will create larger geographic operating entities and provide more marketing resources at the local level. The new structure will be in place by early Apr, 2010.

Guidance

For 2010, UPS anticipates earnings per share to be in the range of $2.70-$3.05, an increase of 17%-32% over 2009 results. While cash generation is expected to remain strong in 2010, capital expenditure is projected to be $1.8 billion, well below UPS’s historical range.