UPS reports drop in 3Q profit

[October 24, 2008]  ATLANTA, Ga. (AP) -- UPS Inc.'s third-quarter profit fell nearly 10 percent despite a rise in sales, the world's largest shipping carrier said Thursday as it warned that it faces more challenges ahead, job cuts may be on the horizon and the "scope and the size" of a deal it is working out to carry some packages for rival DHL could change.

While its results for the most recent quarter beat Wall Street expectations, the Atlanta-based company projected its full-year earnings per share will come in toward the lower end of the range it previously gave.

"Santa's sleigh may be a bit lighter this year," Chief Financial Officer Kurt Kuehn said during a conference call with analysts.

The fourth quarter includes the traditionally busy holiday shipping period.

Kuehn said UPS intends to continue to cut costs by making network modifications, lowering capital expenditures and through reductions in staffing levels. He did not elaborate on any potential job cuts.

UPS said it earned $970 million, or 96 cents a share, for the three months ended Sept. 30, a 9.9 percent decline from profit of $1.08 billion, or $1.02 a share, a year ago.

Revenue rose 7.4 percent to $13.11 billion, from $12.20 billion a year ago.

Analysts surveyed by Thomson Reuters expected earnings of 89 cents a share on revenue of $13 billion.

UPS, also known as United Parcel Service, said it expects full-year earnings per share to come in toward the lower end of the $3.50 a share to $3.70 a share guidance it gave in July.

For the first nine months of the year, UPS earned $2.75 billion, or $2.67 a share, compared to a profit of $3.02 billion, or $2.84 a share, a year earlier. Nine-month revenue rose to $38.8 billion, compared to $36.3 billion a year earlier.

UPS' shipping business within the U.S. in particular has been affected. When it released its second-quarter earnings, UPS lowered its outlook for the full-year. The current fourth quarter includes the traditionally busy holiday shipping period.

The company remains confident in its plans for future growth. UPS has said it has been working to cut costs.

UPS also is working out a contract to carry some air packages for DHL, the struggling U.S.-based express shipping unit of German postal service Deutsche Post AG. UPS, when it announced the proposed collaboration on May 28, predicted that the deal, when completed, would add up to $1 billion in annual revenue for the company.

But UPS Chief Executive Scott Davis said Thursday that the impact of the economic downturn and customer reaction to DHL's downsizing in the U.S. could change things.

"The scope and the size of that deal could change," Davis said. He did not elaborate.

Executives have said UPS also is interested in expanding its international package business. Asia and Europe are of particular interest to the company, executives have said. Besides the potential UPS-DHL deal, UPS has not announced any further deals in recent months.

"Adverse times test the mettle of an organization," Davis said. "The good companies can emerge better and stronger from having had that test."

Standard & Poor's analyst Jim Corridore in a recent research note reiterated his "Hold" recommendation on shares of UPS. He said the company's margins have been hurt by higher fuel costs and a customer shift to services that are less profitable for the company. Some customers have been using ground shipping, instead of air express, because it is cheaper. Given the current economic climate, he said S&P was cutting its 2009 earnings per share estimate. He added, "We see UPS as a good long-term holding, based on a diversified geographic revenue mix, a strong brand, and strong cash generation. But with weak global economy, we would not add to positions."

UPS hopes to complete its vendor agreement with DHL by the end of the year. The potential deal has drawn criticism from officials in Ohio, where thousands of jobs could be lost if DHL proceeds with its plan to shift business away from its current two air vendors to UPS. Officials at UPS have defended the deal, insisting that it is not a merger and will not lessen competition.

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On the Net:

UPS Inc.: http://www.ups.com/

[Associated Press; By HARRY R. WEBER]

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