International improvement drives UPS 4Q

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upsUPS today, Feb. 2, announced a fourth-quarter profit of $757 million, compared with a profit of $254 million from a year earlier, due in large measure to strong performance by its international segment. That segment saw volume growth, a substantial gain in operating profit and improvement to a 16.7 percent operating margin. Revenue fell 2.5 percent to $12.38 billion from $12.70 billion.

For 2009, UPS generated free cash flow of $4.1 billion and posted adjusted operating profit of $4.0 billion. On a reported basis, operating profit was $3.8 billion.

“UPS ended 2009 on a high note by leveraging network changes implemented throughout the year and executing flawlessly during the peak holiday shipping period, which was stronger than we had anticipated,” said Scott Davis, chairman and chief executive officer of the Atlanta-based company. “The company demonstrated its ability to manage effectively in changing market conditions. UPS has emerged from the worst recession in decades leaner, more focused and better positioned to take advantage of increased global trade.”

UPS said it ended 2009 in a strong financial position. In addition to exceptional free cash flow, UPS also paid $1.8 billion in dividends, invested $1.6 billion in capital expenditures, repurchased a total of 10.9 million shares for $569 million, and ended the year with $2.1 billion in cash and short-term investments.

UPS announced Jan. 8 that it was restructuring the U.S. Domestic Package segment. By leveraging technology and the management skills of its people, the company says it will create larger geographic operating entities and provide more marketing resources at the local level. The new structure will be in place by early April.

Reductions in segment revenue and operating profit were caused by declines in global forwarding and UPS Freight. Forwarding’s operating margin was challenged by rapidly escalating transportation costs stemming from a surge in demand in a capacity-constrained environment out of Asia. The Logistics business recorded an increase in revenue, driven by growth in the healthcare sector. Improved operating efficiencies and contract management produced strong results.

The company said UPS Freight experienced a difficult fourth quarter. Revenue per hundredweight increased, but shipments were flat and tonnage declined. The unit posted an operating loss for the quarter due to the extremely competitive pricing environment in the LTL business. Year-over-year, UPS Freight gained market share, the company said.

“Economic forecasts indicate gradual improvement as 2010 unfolds,” said Kurt Kuehn, chief financial officer. “The first quarter will be the most challenging of the year for UPS, with profitability only slightly better than last year. For 2010, UPS will substantially improve performance by leveraging our extensive product portfolio and global network. We also expect cash generation to remain strong in 2010, with capital expenditures totaling $1.8 billion. This is well below our historical range but still supports growth opportunities.”