UPS 3Q profit rises 5 percent, keeps year view

AP News
Posted: Oct 25, 2011 6:06 PM
UPS 3Q profit rises 5 percent, keeps year view

UPS says the global economy is leveling off, as growth in Europe and some U.S. units make up for sluggishness in the once-hot market for Asian imports.

The world's largest package delivery company said Tuesday that improvement in its supply chain and freight business in the U.S. helped it report a 5 percent improvement in third-quarter earnings. It also maintained its earnings forecast for the full year, which bakes in an expectation that the U.S. economy will continue to grow at a very slow pace.

UPS still expects to earn between $4.15 and $4.40 per share this year. Analysts polled by FactSet Research currently predict $4.23 per share.

In the three months ended Sept. 30, the Atlanta company earned $1.04 billion, or $1.06 per share, compared with $991 million, or 99 cents per share, a year earlier.

Revenue rose 8 percent to $13.17 billion. Sales in its freight unit _ which hauls heavier items like refrigerators and other appliances _ rose 5 percent. U.S. domestic package revenue was up 7 percent. Despite a slowdown in shipments of iPods, computers and other expensive gadgets from China, international package revenue still rose 14 percent. Strength in Europe, despite continued debt worries there, held up UPS' international unit.

The most dramatic slowdown in UPS' business from last year was in shipments from China to the U.S. Americans pulled back on spending this summer amid debt talk uncertainty in Washington and growing fears of another recession. UPS said volume fell between Asia and U.S. in the third quarter; a year ago, it leaped by 47 percent.

To counteract the slowdown there, UPS is using fewer planes to cut costs. But in a conference call with analysts, UPS Chief Financial Officer Kurt Kuehn said the cuts weren't enough to account for the steep decline in demand. If American consumers pull back further, the company said it will make more adjustments, mostly by redeploying planes to parts of the world where business is better.

Higher prices and fuel surcharges helped drive results in the third quarter. Operating profit in its international segment fell 2.4 percent. Operating profit also fell at the company's core U.S. package business, but rose 10 percent for supply chain and freight. The supply chain unit provides a number of services for companies including help with warehouse and shipping efficiency. It's growing as more companies look for ways to reduce costs.

United Parcel Service Inc. made more money from its fuel surcharge plan in the quarter as oil prices fell rapidly. In times when prices are falling quickly, UPS _ which charges customers a surcharge based on the price of oil _ benefits because the charge lags actual prices by about two months.

UPS shares fell $1.52, or 2.1 percent, to close at $69.35 Tuesday.