UPS Reports Strong Earnings

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The United Parcel Service, Atlanta, last week announced that its revenues for the fourth quarter ending Dec. 31 totaled $6.66 billion, which is an increase of 8.6 percent compared to the $6.14 billion reported for the same period in 1997. Revenues for the full year also increased 10.4 percent to almost $25 billion.

According to Ed Wolfe, an analyst at BT Alex.Brown, New York, last year's numbers are "astonishingly strong, especially since UPS lost 4 percent of its total revenue during 1997 after the [Teamsters] strike."

The UPS attributed the growth to a strong focus on global operations, customer service and technology, as well as low fuel prices and cost-containment efforts.

It also cited successful introduction of its UPS Document Exchange Web-based delivery service; the addition of many large new agreements with IBM, Barnes & Noble, Dell Computer and Micron Electronics; continued strong growth by the UPS Logistics Group; the offering of Guaranteed Ground Service; and UPS' emergence during the past holiday season as the leader in the e-commerce marketplace.

According to a 1998 holiday Internet shopping report by Zona Research, Redwood City, CA, 55 percent of respondents chose UPS as their primary shipper and 32 percent chose the U.S. Postal Service.

"This was a great year for us, but the best is yet to come," said Jim Kelly, UPS chairman/CEO in a statement. "Our e-commerce strategies are bearing fruit and no company is better positioned to serve the world of digital commerce than UPS."

Last year was also the first year that UPS' international operations posted a profit. International revenues for 1998 totaled $3.2 billion, up 10.3 percent from the $2.9 billion reported in 1997. Volume climbed 10.5 percent in 1998 compared with 1997, and operating profits for international operations jumped to $56 million for the year, a $123 million improvement over 1997.

But, said Wolfe, total international revenue for FDX -- which is one of UPS' main competitors -- was $3.7 million, and its operating profit was $69 million. However, FDX's international revenue was up only 6 percent during 1998.

In addition, FDX recently announced that the contingency expenses incurred in connection with its Federal Express pilot contract negotiations will be approximately $90 million, which is from $20 million to $30 million less than the company forecasted. These expenses will be recognized in the third fiscal quarter that ended Feb. 28. Eighty million dollars was included in operating expenses, and $10 million was included in other expenses.

Other findings reveal that UPS' net income for the fourth quarter rose to $482 million compared to the $351 million for the same quarter in 1997. Net income for the year rose to $1.7 billion compared with the $909 million reported for 1997. Domestic package operations produced $20.65 billion in revenue for 1998 compared with $18.87 billion in 1997, a 9.4 percent increase.

Finally, UPS' operating margin was 64 percent better than FDX's operating margin during 1998, and according to Wolfe, this is significant because it implies that "UPS could take more pain in a price war if it decides to fight to defend its ground market share against [rival] RPS."

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