UPS Domestic Business Struggles in Q3

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United Parcel Service, Atlanta, announced solid third-quarter results yesterday for its international and supply chain businesses, but its domestic business showed the effects of the weak economy and contract negotiations with Teamsters at the start of the summer.

Average daily U.S. package volume for the carrier dipped 2.1 percent to 11.7 million for the quarter, which ended Sept. 30. U.S. revenue was $5.89 billion, up 1.4 percent from $5.81 billion a year ago, but operating profit declined 9.6 percent to $809 million.

Scott Davis, UPS's chief financial officer, said in a statement that the company had won back slightly more than half of the domestic business it lost in June and July during contract talks with the Teamsters. The contract was approved in July without a strike.

"We are maintaining a very patient and disciplined approach to winning back diverted volume as well as new volume that was unavailable to us while labor negotiations were in progress," he said. "The economy, however, is the bigger issue since it is not showing signs of recovery."

International business reported an operating profit of $65 million compared with a loss of $4 million in last year's third quarter. Revenue rose 17 percent to $1.18 billion, and average daily international deliveries were up 9.9 percent overall and 15 percent in Europe and Asia.

In the non-package segment, including Supply Chain Solutions, revenue rose 17.4 percent to $681 million and profit increased 46.2 percent to $52 million. New customers signed in the quarter included Nikon, Scovill Fasteners and Oneida, and several existing customers, such as Alcatel and Dell, expanded their business with the Supply Chain Solutions group.

Overall, Q3 revenue was $7.75 billion, up 4.8 percent from last year, and net income was $578 million, up from $568 million last year.

For the three quarters to date through Sept. 30, revenue was $23 billion, up 3.1 percent from the first three quarters of 2001. Operating profit and net income were flat at $2.9 billion and $1.75 billion, respectively.

Looking ahead, volume growth for the fourth quarter is expected to trail 2001 Q4 volume growth by 1 percent before picking up through 2003.

"For 2003, assuming an economic recovery, UPS should be able to meet or exceed its historical earnings growth rate of 13 percent," the UPS statement said, with the second half of 2003 expected to be stronger than the first half.


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