United Parcel Service Inc., the world’s largest package-shipping company, said its first-quarter net income fell 14 percent because of payments made to retire aging aircraft and to complete a voluntary separation program.
Net income decreased from $975 million in the first quarter of last year to $843 million for the three months ending March 31, Atlanta-based UPS said. Sales rose 3.3 percent to $11.9 billion as customers increased exports, compensating for stalled demand at home.
“We are pleased with the company’s first-quarter performance,” Mike Eskew, UPS chairman/CEO, said in a statement. “Strong gains in our international package and supply chain and freight businesses helped offset the impact of a slowing U.S. economy. We will continue to invest aggressively to seize the growth opportunities created by the rise in global trade.”
UPS took an impairment charge of $221 million during the quarter on certain Boeing 727 and 747 aircraft, including charges related to engines and parts, due to the acceleration of the planned retirement of these aircraft.
The company also realized a charge of $68 million to reflect the cost of a previously announced voluntary separation opportunity. The charge covered cash payouts, the acceleration of stock compensation and certain retiree healthcare benefits for participating employees.
The effect of these two charges after tax was $184 million. The aircraft impairment charge affected the U.S. Domestic Package segment by $159 million and the International Package segment by $62 million.
The separation charge affected the U.S. Domestic Package segment by $53 million, the International Package segment by $7 million and the Supply Chain and Freight segment by $8 million.
Volume in the U.S. operation was flat for the quarter as a result of a slowing economy, UPS said. Next Day Air volume declined marginally, and deferred volume dropped 1.8 percent. Ground volume was also flat, but revenue per piece on ground products remained strong with a 3 percent gain.
Scott Davis, vice chairman and chief financial officer, said UPS is projecting earnings for the second quarter in a range of $1.00 to $1.05 per diluted share, compared to $0.97 for the second quarter of 2006. He also reaffirmed the company’s annual target of a 6 to 10 percent increase in adjusted diluted earnings per share.
“We remain excited about the long-term growth opportunities ahead for UPS,” Mr. Davis said in a statement. “The U.S. economy was softer than we originally anticipated, but continued rapid growth outside the United States and steady improvements from our supply chain and freight segment are expected to produce a solid performance for the company in 2007.”
