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Thursday, July 22, 2010

UPS Raises Outlook, Despite Mixed Economy

Associated Press

UPS isn't expecting U.S. consumers to significantly increase spending anytime soon. Instead, it's counting on businesses to push the economy — and UPS' domestic business — slowly forward with overdue purchases of computers and other electronics.

UPS on Thursday expressed confidence that the "slow pace" of economic recovery in the U.S. can be overcome by increased prices and strong international shipments. UPS raised its full-year outlook for the second time since January.

The results from the world's largest shipping company confirm that U.S. consumers and businesses aren't spending beyond the necessities — except when it comes to technology.

Consumers are gobbling up iPhones, iPads and other new gadgets that are shipped from Asia, Chief Financial Officer Kurt Kuehn said in an interview with The Associated Press. Technology purchases are countering sluggish spending in other areas for businesses, too — especially those that put off upgrades or new computer purchases during the recession.

"Tech has really been leading from Asia, with China leading the charge," Kuehn said. A growing portion of UPS' business is international.

Consumers and business customers also want their goods more quickly, increasingly using next-day air service instead of cheaper truck delivery. That bodes well for UPS' ability to fetch more money per package.

The Atlanta company said Thursday it expects adjusted earnings of $3.35 to $3.47 per share this year, up from a previous prediction of $3.05 to $3.30. Analysts' currently expect $3.27.

Shares of UPS jumped 6.5 percent to $63.93 in midday trading.

UPS Inc. said Thursday that earnings for the second quarter nearly doubled to $845 million, or 84 cents per share, compared with 445 million, or 44 cents per share a year ago. Revenue rose 13 percent to $12.2 billion.

Thomson Reuters says analysts forecast 77 cents per share on $11.98 billion in revenue.

"UPS fired on all cylinders in the second quarter even in the face of a mixed global economic environment," said CEO Scott Davis.

UPS' international business continues to be the key growth area. Package volume jumped 24 percent, while revenue per package rose about 2 percent because customers used cheaper modes of shipping. International exports rose 15 percent in the quarter, led by shipments out of Asia, which were up more than 40 percent.

In the U.S., average daily package volume rose just 1 percent. But UPS took in 6 percent more revenue per package, mostly by charging higher prices and passing along fuel costs to customers.

Even as business improves, UPS isn't eager to hire anytime soon. Instead, it's looking for ways to take on more shipments without adding costs.

For the quarter that ended in May, UPS' smaller rival FedEx earned $419 million, or $1.33 per share. It said last month that economists are being too pessimistic about the pace of global recovery.