UPS raises outlook while eyeing economic risks

AP News
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Posted: Apr 26, 2011 3:30 PM
UPS raises outlook while eyeing economic risks

UPS expects the pace of the economic recovery to moderate because of risks like high oil prices, but remains confident it can grow earnings significantly from a year ago.

The world's largest package delivery company on Tuesday raised its full-year earnings forecast after first-quarter net income rose 66 percent. Shipping demand increased and customers paid more to move packages faster in the year's first three months.

United Parcel Service Inc. now expects to earn $4.15 to $4.40 per share this year, implying growth of 17 to 24 percent from 2010. Its previous estimate was $4.12 to $4.35 per share.

Higher fuel prices, unrest in the Middle East and uncertainties surrounding nuclear fears in Japan are among the major risks to economic growth this year, Chief Financial Officer Kurt Kuehn said in an interview with The Associated Press. But UPS expects continued revenue growth across the world, combined with higher shipping rates and fuel surcharges, to drive earnings.

"The global economic outlook has become a little cloudier than it was three months ago," Kuehn said. "However, we still expect 2011 to be a great year."

In the first three months of 2011, the Atlanta company earned $885 million, or 88 cents per share. That's up 66 percent from $533 million, or 53 cents per share, UPS earned a year ago.

Revenue jumped 7 percent to $12.58 billion.

Analysts polled by FactSet expected a profit of 84 cents per share on sales $12.71 billion.

UPS' freight segment had the fastest growth in the quarter. Adjusted operating profit rose 44 percent. The freight segments at both UPS and rival FedEx struggled last year as the trucking industry had too many trucks competing for too little freight.

The company's U.S. domestic package unit, which was recently reorganized, saw adjusted operating profit jump 29 percent.

Overall, revenue per package rose 5 percent in the quarter, driven by higher prices and fuel surcharges. In the U.S., UPS said more customers opted for faster service as its premium product growth outpaced ground service. UPS' premium offerings include its next day or two-day air service. The ground service takes longer and charges less to move packages solely by truck.

Customers favored cheaper, slower options to save money during the recession.

Oil prices rose 17 percent in the first quarter. Even if they continue to go up, Kuehn doesn't expect customers to trade down as much as they did in 2008. UPS has lowered fuel surcharges for air shipments, which narrows the price gap between speedier and slower shipping options. And more businesses rely on faster shipping options now than they did three years ago, because they're keeping inventories lean _ a measure of caution as the global economy recovers.

UPS shares rose 56 cents to $74.20. The stock's 52-week high is $77.