UPS optimistic about economic recovery; Reports nearly 33 pct rise in 1Q profit

By Harry R. Weber, AP
Tuesday, April 27, 2010

UPS optimistic about economic recovery

ATLANTA — The improving economy at home and abroad helped boost shipping giant UPS’ first-quarter profit and its prospects for the rest of the year.

While a growing number of customers are choosing less-expensive options when sending packages — a reflection of tight budgets at businesses — UPS’ overall volumes are increasing and it is seeing better numbers across its other segments as well.

Rate increases, fuel surcharges and cost-cutting measures implemented in response to the recession also bolstered results. Consolidated volume and average revenue per piece each rose 3 percent in the quarter.

Health care companies are sending more medical devices and prescription drugs. High-tech firms are shipping more equipment and there’s evidence of modest restocking of inventories among companies in general — good news for the economic recovery and for shippers like UPS and rival FedEx.

UPS notched a 33 percent increase in first-quarter earnings. UPS boosted its full-year outlook when it pre-released its earnings two weeks ago.

The company is seeing more growth in customers sending packages by ground versus by air, a trend that is expected to continue for the time being as more customers seek slower methods of delivery that are less expensive than faster methods like next-day air.

UPS Inc., also known as United Parcel Service, restructured its business over the last 18 months, cutting jobs in the process. The shipper doesn’t plan any significant hiring anytime soon, at least until the recovery is on more solid footing.

“We intend to sustain the reductions we have made and control all those cost items,” Chief Financial Officer Kurt Kuehn said Tuesday during a conference call to discuss UPS’ financial results for the first three months of the year.

As the broader market plunged because of concerns over the finances of the governments in Greece and Portugal, UPS shares fell $2.30, or 3.4 percent, to close at $66.22. FedEx shares lost $2.78, or 3 percent, to close at $89.72. Both stocks have seen solid percentage gains so far this year, on a split-adjusted basis.

UPS, based in Atlanta, formally reported a first-quarter profit of $533 million, or 53 cents a share, compared to a profit of $401 million, or 40 cents a share, a year earlier.

UPS pre-released earnings results on April 14.

Adjusted first-quarter earnings, which exclude one-time items, totaled 71 cents per share. On that basis, analysts had expected earnings of 58 cents a share.

Revenue increased 7.2 percent to $11.73 billion from $10.94 billion a year earlier.

UPS is the world’s largest shipping carrier. Besides delivering small packages, it also carries heavy freight and provides logistics services around the world. Its results and those of rival FedEx Corp. are closely watched because the companies are considered good indicators of how the overall economy is doing.

In March, FedEx, based in Memphis, Tenn., reported that its fiscal third-quarter profit more than doubled. That was FedEx’s first year-over-year profit increase in five quarters.

FedEx also raised its earnings forecast for its fiscal year ending in May.

On Tuesday, UPS reiterated that it now expects full-year adjusted earnings per share to range from $3.05 to $3.30, up from the $2.70 to $3.05 it projected in February. Analysts surveyed by Thomson Reuters had expected adjusted full-year earnings of $2.95 a share, prior to UPS’ pre-announcement two weeks ago.

The revenue jump in the first quarter was driven by strength in UPS’ international package and supply chain and freight segments. Supply chain involves logistics services that UPS provides companies that need to deliver things.

U.S. domestic daily volume increased less than 1 percent, but that marks the first year-over-year growth in more than two years, UPS said.

Next-day air shipments of documents from financial services firms aren’t as strong, however, as home refinancings slow down amid higher interest rates.

As for the volcanic ash cloud that hovered over Europe and disrupted air travel earlier this month, it’s too early to tell what the financial impact on UPS will be, CEO Scott Davis said. The company has a large ground network in Europe and was able to continue delivery of many of its packages during the disruption with minimal delays, he said.

UPS expects to further discuss the ash cloud impact when it releases second-quarter results.

Davis also addressed criticism from FedEx over UPS’ support for a clause in the FAA reauthorization bill that would switch FedEx drivers currently covered until the Railway Labor Act to the jurisdiction of the National Labor Relations Act. UPS drivers are governed by the NLRA. While the switch could make it easier for FedEx drivers to unionize, UPS said its support of the measure is about fairness among companies that provide similar services.

“It’s illogical that the two companies should be governed under different labor laws,” Davis said.

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