Aircraft charge, separation program dent UPS earnings
Express carrier giant UPS reported first quarter net profit of $843 million, down from $975 million in the year-earlier period, while revenue improved to $11.9 billion, from $11.5 billion in the first quarter of 2006.
UPS said earnings were impacted by an impairment charge relating to aging jet aircraft and expenses for a voluntary separation program completed during the quarter. Excluding those charges, the company said operating profit grew to $1.65 billion from $1.56 billion. Including the charges, operating profit was $1.36 billion.
“We are pleased with the company’s first quarter performance,” said Mike Eskew, UPS chairman and chief executive officer. “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.”
During the period, UPS took an impairment charge of $221 million on certain Boeing 727 and 747 aircraft, including related engines and parts, due to the acceleration of the planned retirement of these aircraft. In addition, the company realized a $68 million charge to expense to cover cash payouts, the acceleration of stock compensation and certain retiree health care benefits for participating employees.
The early separation agreement affects 194 employees.
The Atlanta-based company made the offer in December to employees above 50 years of age with more than 10 years experience as part of an effort to consolidate corporate functions such as human resources, finance and sales.
The company said consolidated volume in the U.S. operation was flat for the quarter as a result of a slowing U.S. economy. Next Day Air volume declined marginally and deferred volume dropped 1.8 percent. Ground volume was flat, although revenue per piece on ground products remained strong with a 3 percent gain.
Export volume improved 10 percent, led by a more than 20 percent jump from Asia and a double-digit increase from Europe.
UPS said its supply chain and freight segment posted a second consecutive quarter of improved results. It said its forwarding and logistics unit achieved excellent cost control and completed the restructuring efforts begun last year.
Ground freight posted increased revenue and positive shipment growth.
Looking ahead, Scott Davis, vice chairman and chief financial officer, said that while the U.S. economy was softer than the company had anticipated, “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.”