UPS profit drops, shares rise on outlook

United Parcel Service Inc reported lower quarterly profit on Tuesday, citing slowing global trade, and said there was "some uncertainty" about the strength of the coming holiday season.

The share price rose 2.7 percent after UPS slightly revised its 2012 forecast, signaling to Wall Street it would top the consensus estimate for the fourth quarter, which includes the important holiday shipping season.

Third-quarter earnings per share at the world's largest package delivery group, matched estimates, but quarterly revenue fell from a year ago and missed the Wall Street view.

UPS and rival FedEx Corp are viewed as economic bellwethers because of the volume of goods they handle. The value of packages that UPS moves on its trucks and planes is equivalent to about 6 percent of U.S. gross domestic product and 2 percent of global GDP.

"We're seeing a slower growth environment and customers continuing to shift to slower modes of transport," said Edward Jones analyst Logan Purk. "Freight still moves, but on a cheaper mode of transport that affects revenues and therefore profitability."

Purk put a "hold" rating on the stock, citing the pending 5.2 billion euro ($6.7 billion) takeover of Dutch peer TNT Express - the biggest purchase in UPS's 105-year history - as well as the slowing economy and cautious customers.

The year-end "fiscal cliff" drama in Washington over steep spending cuts and expiring tax breaks worried UPS executives.

"The lack of clear direction on future tax and spending policy has (slowed) and will continue to slow business investment," Chief Executive Scott Davis told analysts on a conference call. "The lack of political will to fix our debt problem adds to the uncertainty in our economy. Just what we don't need."

UPS sees adjusted full-year earnings at between $4.55 and $4.65 per share, which would be 5 percent to 7 percent above the 2011 figure. Its prior forecast ranged from $4.50 to $4.70.

Analysts estimated $4.56 a share For the year, according to Thomson Reuters I/B/E/S.

"That guidance implies $1.34 to $1.44 per share in the fourth quarter, compared with the $1.34 Wall Street consensus, and that's what's driving the optimism," Purk said.

UPS said it expects to handle more than 500 million packages between Thanksgiving and Christmas, and said it would release more estimates and holiday hiring plans within a few weeks.

FedEx said on Monday it expects to handle more than 280 million shipments in the period and intends to add 20,000 seasonal workers.

"While there is some uncertainty around the magnitude of the holiday shopping season, we are confident in UPS's ability to deliver," Chief Financial Officer Kurt Kuehn said.

The stock rose 2.7 percent to $73.50 in late-morning trade.

MAKING CONCESSIONS

The company will be more exposed to problems in Europe with its planned TNT purchase, but the deal will make UPS the market leader on the continent and broaden its reach in Asian and Latin American markets.

UPS and TNT will respond within a couple of weeks to objections to the deal from the European Commission. The European Union's antitrust chief has said UPS will have to make concessions to get approval.

Davis, the CEO, said UPS is confident the deal will close in early 2013.

U.S. domestic revenue rose $94 million from the year-ago third quarter, with daily package delivery volume up 3.7 percent on e-commerce shipments. The biggest percentage rise was in deferred deliveries, a cheaper option.

International package revenue declined 3.7 percent as lower fuel surcharges to customers and the impact from foreign currency more than offset 1.2 percent growth in daily export volume.

For the first time in several quarters, Asia showed growth in export package volume, largely benefiting from technology product launches, the company said.

This year, UPS has adjusted its network to cope with slowing shipments from Asia and higher demand for cheaper shipping.

Third-quarter earnings declined to $469 million or 48 cents share, from $1.07 billion, or $1.09 a share, a year earlier.

In August, the company said it would restructure pension liabilities and record an aftertax, non-cash charge of $559 million in the quarter.

Adjusted earnings were $1.06 per share, matching analysts' estimates, compared with $1.09 a year ago.

UPS revenue totaled $13.07 billion in the quarter, down from $13.17 billion a year ago and below the $13.3 billion forecast.

FedEx, the No. 2 package delivery group, has already cut its fiscal 2013 forecast, warning that the weakening economy was driving more customers to cut costs by picking cheaper shipping methods for goods ranging from auto parts to personal computers.