UPS on track for record profit in 2011

Industrials Reuters

By Lynn Adler

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LOUISVILLE, Kentucky (Reuters) - United Parcel Service <UPS.N> Chief Executive Scott Davis said the world's largest package delivery company is on track for record results this year even in the face of the economy's "bumpy ride."

Analysts were concerned that package delivery companies UPS and its rival FedEx <FDX.N> would fall short of expectations because of the sluggish economy and plummeting consumer sentiment.

"The last few months, we've seen a bumpy ride that may likely continue," Davis said. "Despite this great uncertainty UPS still expects to set a new high for EPS this year."

UPS repeated its forecast in July for record earnings per share of between $4.15 and $4.40, citing cost cuts and higher rates.

The company's outlook in spite of an unsettled global economy follows similarly bullish comments by diesel engine maker Cummins <CMI.N> management on Tuesday.

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"We do remain cautious on the U.S. economy, but our expectation is that we have another year, year and a half, of sub-par growth and then we'll return" to pre-recession trend growth levels of 2.5 percent to 3 percent, Chief Financial Officer Kurt Kuehn said.

Two expected UPS growth drivers are global trade that creates job growth, and healthcare logistics the company is investing in heavily and Davis said is in the "early innings of outsourcing."

"America is fed up and I am hopeful, maybe naively, that we will start seeing some policy decisions" shortly, particularly on global trade policies, Davis said. "Consumer confidence, consumer trust in Washington, can't get much lower than it is right now."

UPS's small-business customers will start hiring once there is some clarity, he said.

U.S. postal service downsizing and U.S. defense spending constraints that lead to greater outsourcing by the U.S.P.S. and the military are also growth opportunities, said Davis.

Davis and other UPS executives spoke at the Atlanta-based company's first investor meeting in more than three years.

UPS expects earnings per share to rise 10 percent to 15 percent and revenue to rise 6 percent to 8 percent annually from 2011 to 2016. Its capital spending will be 4 percent of revenue over the same time frame, focused more on growth than on maintenance, he said.

The company also said on Thursday it is expanding its Cologne, Germany-based hub that increases capacity 65 percent.

On Wednesday, it announced a service that enables greater control over the timing of package delivery for residential consumers. Consumers will get alerts via text message and other means, as the company offers free and premium options to make missed deliveries a thing of the past.

Kuehn said UPS has been buying back shares at discounted prices, and raised the full-year estimate by $700 million to $2.7 billion. Buybacks should reach about $8 billion between 2012 to 2014, and return on invested capital is expected to be at least 25 percent by 2014,

UPS shares were down 0.3 percent, or 30 cents, at $65.97 Since peaking in February, UPS shares have fallen 15 percent. FedEx shares have fallen 23 percent in that same time period.

(Editing by Maureen Bavdek and Derek Caney and Gunna Dickson)