WSJ: UPS Raises Outlook as Profit Jumps

October 21, 2010: United Parcel Service Inc. reported an 81% surge in third-quarter profit and raised its 2010 financial forecast amid what the shipping giant called a lethargic economic recovery.

"We think that even with a modest-growth economy we can show good expansion in revenue and earnings," Chief Financial Officer Kurt Kuehn said during an interview.

Predications by economists earlier in the year that the recovery would gain steam don't appear to have panned out, Mr. Kuehn said, although he stressed that the broad economy is still growing slowly. "We actually see the core performance of the economy to be very stable," he said.

Shares in Atlanta-based UPS were up 16 cents at $69.81 on the New York Stock Exchange at midday.

As a diversified transportation company that moves goods as diverse as documents and building materials, UPS, along with FedEx Corp., is considered a barometer of the health of the U.S. economy.

UPS said Thursday that it expects fourth-quarter U.S. domestic package volume to be up 1.5% to 2% overall, which would mark a slowdown from 3.6% growth in the third quarter, compared with the year-earlier period.

Still, Mr. Kuehn said that the fourth-quarter comparison will be negatively affected this year by the addition of an extra, low-volume working day between Christmas and New Year's. Excluding the anomaly, the year-over-year growth rate is likely to be similar to the third quarter, he said.

UPS said its international export volume is likely to rise by a single-digit percentage in the fourth quarter, compared with a year earlier, after climbing 13% in the third quarter.

The company attributed the expected slowdown mainly to comparisons with the big gains that it has been recording. Asian exports rose 34% in the third quarter, for instance, after climbing 40% in the second quarter.

"There's a little bit of tempering in the rate of growth," but the figures are still strong, Mr. Kuehn said.

He and Chief Executive Scott Davis also said they think the traditional peak preholiday shipping season still may have some juice left, which would benefit the fourth-quarter shipping numbers. Some industry analysts have said peak season came early this year, because retailers opted to stock up early to avoid last-minute delays.

But UPS said customer inventories appear to be low. "If there is reasonable [consumer] demand, then we think that there should be a pretty good result" in terms of increased freight, Mr. Kuehn said.

UPS reported a third-quarter profit of $991 million, or 99 cents a share, up from $549 million, or 55 cents a share, a year earlier. Excluding a $109 million gain on the sale of real estate, earnings would have been 93 cents a share in the latest quarter. Revenue rose 9.3% to $12.19 billion.

Operating margin jumped to 13.3% from 8.3% as average daily volume rose 4.9%.

The company also raised its 2010 earnings outlook, to a range of $3.48 to $3.54 a share from $3.35 to $3.45.

UPS also announced that it will "ramp up" its share repurchases next year, and said it plans to reinstate 401(k) matches that it had halted as a cost-saving measure amid the downturn.

Mr. Kuehn also said the company is on the lookout for acquisitions, citing the health-care logistics sector in particular but adding that the company might make deals in other areas as well. "We certainly have the balance sheet" for acquisitions, Mr. Kuehn said.

UPS said its U.S. package revenue climbed 6.1% in the third quarter, as the unit's profit jumped 98%. In its international-packages segment, revenue increased 11% and profit climbed 34%.

By Bob Sechler with contributions from John Kell for The Wall Street Journal.

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