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(Reuters)

High Cost Holiday Season Dents UPS Profit

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United Parcel Service Inc <UPS.N> said on Tuesday it will start applying surcharges for residential packages this year after its costs soared during the recent disappointing holiday season.

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UPS also reported that fourth-quarter profit fell from a year ago but forecast earnings within the range of estimates.

UPS, the world's largest package delivery company, warned in late January it would report a fourth-quarter profit below its forecast and market expectations.

The Atlanta-based company had mobilized more workers and equipment for an anticipated surge in holiday packages, but the extra business failed to materialize. The additional costs primarily affected the company's domestic ground package unit.

As a result of the poor quarter, UPS Chief Executive Officer David Abney said on a conference call that the company would apply surcharges for residential packages in particular. The additional charges will be applied over several years as contracts with major customers are renegotiated.

"These pricing strategies will be designed to ensure we are properly compensated for the value we provide," Abney said.

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UPS went through a second consecutive challenging peak season. In 2013, the company was caught off-guard by a late rush of online packages that left an estimated 1.3 million parcels undelivered on Christmas Eve.

UPS spent $500 million last year on network improvements and worked closely with retail customers to prevent a repeat of the miscues in late 2013, but the rising popularity of e-commerce made forecasting volumes a moving target.

UPS forecast full-year 2015 earnings in a range of $5.05 to $5.30 per share. Analysts estimated $5.15 a share this year.

UPS reported fourth-quarter net profit of $1.15 billion, down nearly 2 percent from $1.17 billion a year earlier.

Earnings per share came in at $1.25, unchanged from a year earlier and matching the expectations of analysts.

Quarterly revenue rose 6 percent to $15.9 billion from $15 billion a year earlier, including a 7.5 percent increase in revenue from its domestic ground package business.

Operating expenses jumped more than 20 percent to $9.2 billion from $7.65 billion, which caused a more than 60 percent drop in operating profit at the domestic ground package unit.

On a GAAP basis, the company reported adjusted earnings per share of 49 cents due to pension-related charges.

In early trading, UPS shares were up 1.2 percent at $101.47.

(Reporting by Nick Carey in Detroit; Editing by Bernadette Baum and Jeffrey Benkoe)