UPS tops 3Q profit forecasts despite dip in revenue

AP News
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Posted: Oct 27, 2015 5:23 PM
UPS tops 3Q profit forecasts despite dip in revenue

DALLAS (AP) — UPS predicts that holiday-season deliveries will rise at least 10 percent from a year ago, to more than 630 million packages between Thanksgiving and New Year's Eve.

The company expects its busiest day to be Dec. 22, the Tuesday before Christmas Day, when it expects to deliver more than 36 million packages — double the normal day's load.

On Monday, rival FedEx Corp. predicted that shipments will rise 12.4 percent between Thanksgiving and Christmas Eve. Both companies are being helped by the continuing growth in online shopping.

United Parcel Service Inc. gave its holiday forecast as it reported a slightly higher profit of $1.26 billion but a surprising drop in revenue during the third quarter.

The company's stock fell almost 3 percent.

CEO David Abney said the company has seen "some softness" in the U.S. economy, especially in manufacturing. Deliveries to consumers grew but shipments from one business to another faded in the third quarter, he said.

Falling fuel prices were a double-edged sword for the Atlanta-based package-delivery giant. Cheaper fuel reduced expenses but also took away revenue from fuel surcharges paid by customers, contributing to a 1.6 percent drop in operating profit in its U.S. business. International profit rose 10 percent.

Profit rose 3.5 percent, and UPS earned $1.39 per share, topping expectations. Analysts surveyed by FactSet and Zacks Investment Research had forecast $1.37 per share.

Revenue, however, dipped 0.4 percent to $14.24 billion, and missed analysts' targets. Analysts surveyed by FactSet expected $14.41 billion, while the Zacks survey forecast $14.35 billion.

Executives said they expect full-year earnings to be at the higher end of its forecast of $5.05 to $5.30 per share, which would indicate an increase of between 6 percent and 12 percent over 2014.

The company is preparing for the peak holiday season, and expects to hire up to 95,000 temporary workers to help handle the load, although they will start a little later when they are really needed, Chief Financial Officer Richard Peretz said in an interview.

Planning for the holiday rush can be difficult for the delivery companies. UPS expects that residential deliveries, which are more costly, will be a higher percentage of its business than during the rest of the year.

Earlier this month, UPS announced a series of price increases that will take effect during the rest of the year, including higher surcharges for heavy or oversized packages.

Last year, heavy spending during the season led to a drop in UPS' quarterly profit. To avoid a repeat, UPS, like FedEx, has talked extensively with big retailers to understand their shipping plans. Both delivery companies are prepared to cap shipments and refuse requests that they fear would overwhelm their systems.

On the last few days before Christmas, "if we have customers that greatly exceed the amount of volume that they have committed to us, then we certainly would be willing to enforce caps, but that's not our intention," Abney told analyst on a conference call.

UPS shares fell $3.08, or 2.9 percent, to close at $103.10. They have lost 7 percent since the beginning of the year, while the Standard & Poor's 500 index has gained less than 1 percent.

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David Koenig can be reached at http://twitter.com/airlinewriter

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Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on UPS at http://www.zacks.com/ap/UPS

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Keywords: United Parcel Service, Earnings Report, Priority Earnings