United Parcel Service, Inc. Reports Operating Results (10-Q)
United Parcel Service, Inc. has a market cap of $69.2 billion; its shares were traded at around $70.56 with a P/E ratio of 17.4 and P/S ratio of 1.4. The dividend yield of United Parcel Service, Inc. stocks is 3%. United Parcel Service, Inc. had an annual average earning growth of 9.2% over the past 10 years. GuruFocus rated United Parcel Service, Inc. the business predictability rank of 3-star.
Highlight of Business Operations:On January 3, 2011, in connection with our base rate increase, we modified the fuel surcharge on air and ground services by reducing the index used to determine the fuel surcharge by 2% and 1%, respectively. The 2011 increase in the air and ground fuel surcharges was due to the significant increase in jet and diesel fuel prices, but partially offset by the reduction in the index on the air and ground surcharges. Total domestic fuel surcharge revenue increased by $278 million in third quarter of 2011 ($638 million year-to-date), primarily due to the higher fuel surcharge rates discussed above.
The forwarding and logistics unit experienced an $11 million decrease in operating profit in the third quarter of 2011 compared to the same period in 2010, while the adjusted year-to-date operating profit increased $54 million. For the quarter, forwarding operating profit was flat with the prior year period; however, forwarding operating profit increased on a year-to-date basis largely due to revenue management initiatives and cost containment, which improved operating leverage. Additionally, excess market capacity, especially in the Asia-to-U.S. trade lane, has reduced our purchased transportation costs and improved the operating profitability in this business. Our logistics business had a small decrease in operating profit for the third quarter of 2011 primarily due to our continued investment in expanding our global healthcare capabilities.
The freight unit had an increase of $18 million in operating profit in the third quarter of 2011 compared to the same period in 2010 ($40 million year-to-date) primarily due to increased yields and improved productivity in our operations. Year-to-date operating profit was also impacted by improved volume in the first half of 2011 compared with the prior year.
The increase in investment income for the year-to-date period of 2011 compared with 2010 was caused by a combination of factors. During the first nine months of 2011, we realized $19 million in net gains on the sales of auction rate securities, preferred equity securities and an S&P 500 index fund, as well as a mark-to-market gain on investments. In the first nine months of 2010, we recorded a $21 million impairment on certain asset-backed auction rate securities, which resulted from provisions that allowed the issuers of the securities to subordinate our holdings to newly-issued debt or to tender for the securities at less than their par value. Additionally in 2010, we recorded an $8 million loss on the sale of auction rate securities.
The remaining increases in investment income were impacted by a higher average balance of interest-earning investments in our portfolio in the third quarter and year-to-date periods of 2011 compared to 2010. These factors were partially offset by a lower yield earned on our invested assets.
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