United Parcel Service Inc., the world’s largest package delivery company, posted third-quarter earnings Friday that beat analysts’ estimates after carrying more U.S. shipments at higher rates.
Net income more than doubled to $1.1 billion, or $1.16 a share, Atlanta-based UPS said, affirming a full year forecast for per-share earnings in a range of $4.65 to $4.85. Analysts projected profit of $1.15 a share for the quarter and $4.75 for 2013, based on estimates compiled by Bloomberg.
While UPS reaped less revenue from each international package, in part because of a customer shift to cheaper shipping, it had a gain on that basis for domestic parcels along with an increase in U.S. volumes. UPSis considered an economic bellwether because it moves a variety of goods worldwide.
“International package is struggling with the trade down, currency and fuel,” David Vernon, a Sanford C. Bernstein & Co. analyst, said in a report. “But in domestic - which is 65 percent of the operating income story - operating margins are developing more strongly than we had expected.”
A rise in interest rates contributed to a 3.3 percent decline in U.S. Next Day Air volume as financial services companies and banks shipped fewer refinancing documents, while online sales remained strong, Chief Financial Officer Kurt Kuehn said in an interview.
The company projected growth of 3 percent to 4 percent for daily U.S. shipments and revenue this quarter.
International volume should rise 3 percent to 5 percent, with high single-digit profit growth and an operating margin of about 16 percent, UPS said. Currency and the move from high-cost shipping options will “continue to weigh on yields” in global markets, Kuehn said Friday during a conference call.
“Looking to the fourth quarter, although some major retailers have expressed caution about holiday spending, they still expect robust online sales,” Kuehn said.
UPS didn’t give a forecast for 2014, and said it expects currency fluctuations to negatively affect results by as much as $40 million this quarter.
The shares rose $1.12, or 1.2 percent to close at $95.61. The stock climbed 28 percent this year before today, topping the 23 percent advance for the Standard & Poor’s 500 Index while trailing the 43 percent gain for FedEx Corp., the operator of the world’s largest cargo airline.
U.S. domestic package revenue rose 5 percent to $8.3 billion, buoyed by a 6.6 percent gain in sales for the ground delivery business. Shipments increased by 2.3 percent, and revenue from each domestic parcel climbed 1 percent.
The number of deferred international shipments climbed 11 percent as customers extended the shift away from more costly express deliveries, the company said. Export volumes from Asia were unchanged, and average revenue per piece from international packages declined 0.3 percent.
Also weighing on operating profit was a $75 million negative effect from unfavorable currency rates and higher fuel prices.
The company reduced hours flown domestically and internationally during the quarter as UPS sought to increase efficiency and reduce costs.
UPS said in July that it was trimming main aircraft routes out of Asia to an average 7.5 from 8, lowering head count through attrition and slower hiring to reduce costs. UPS declined to put a dollar value on the changes, which partially were made in response to the drop in international shipping.
UPS said Friday that it expects daily shipping volumes to rise 8 percent during the peak shipping period between Thanksgiving and Christmas, led by growth in online shopping, according to a separate statement.
The company expects package pickups Dec. 2, that to reach 32 million. Deliveries will peak Dec. 16 at more than 34 million packages. UPS also said it would add 55,000 seasonal employees to handle the increase.
Business, Pages 29 on 10/26/2013