UPS 2005 Annual Report Download - page 5

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UPS Annual Report 2005
Diligent execution
A year ago, I laid out four expectations for 2005:
• Preserve the consistency in revenue and earnings
growth that we established over the years
• Grow market share in the global small
package business
• Increase operating profit in each of our three
business units — U.S. domestic, international
and supply chain
• Maintain a sustainable approach to running
our business
I’m proud to say we achieved all of that and more.
We grew revenue and diluted earnings per share by
16.4 percent and 18.4 percent, respectively.
We delivered a record 3.75 billion small packages
in 2005 — or 14.8 million every day.
We grew operating profit in each of our businesses,
ending 2005 with total operating profit of $6.1 billion
— a 23 percent increase over the previous year’s results.
We generated free cash flow of $3.6 billion.*
And we achieved these results through an organization
that is as committed as ever to the role of responsible
corporate citizenship.
Another outstanding year
Our U.S. domestic small package operation exhibited
excellent volume growth during 2005, gaining
momentum as the year progressed. Volume gains
stemmed from our focus on the middle market
customer sector, continued integration of UPS
shipping technology into customers’ operations,
our expanded product portfolio, and accelerated
cross-selling of that portfolio.
This business is a significant value generator and
has long been the financial engine that provides the
resources for our global expansion. With operating
profit of $4.5 billion in 2005, our domestic business
consistently posts the best operating margins in the
industry — 15.7 percent for 2005. Reinvestment of
the funds that this business generates supports growth
through acquisitions, new product development and
service enhancements.
Package Flow Technology, a multi-year re-engineering
of our package pickup and delivery process, is a good
example of reinvestment to support growth. This
technology improves productivity, reduces costs and
provides the platform for new consignee-focused
services.
Our International segment turned in another
exceptional year. Revenue increased 17.2 percent and
operating profit was up 30 percent with volume growth
in all areas of the world. Operating margin in this
business was an outstanding 18.7 percent for the year.
In Europe, UPS has developed a comprehensive,
integrated air and ground network — much like that
in the United States — which serves our customers’
local, regional and international shipping needs. The
2005 acquisition of two strong, local networks in
Poland and in the United Kingdom expanded our
customer base and brought enhanced services to
customers in those areas.
* See page 10 for a reconciliation of free cash flow.
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Chief Executive Ofcer Letter 3