UPS expects sharp profit jump in 2010

NEW YORK (Reuters) - United Parcel Service Inc (UPS.N) gave a 2010 earnings forecast that pleased Wall Street, saying a recovery was underway in many regions, but it expects the U.S. market to lag.

The world's largest package delivery service, which reported quarterly results on Tuesday, said the current quarter would be the year's most challenging.

The company's stock rose as much as 2.7 percent before settling at a 1 percent increase.

"As we look out over 2010, we see a story of a gradually firming economy," Chief Financial Officer Kurt Kuehn said during a conference call with analysts, adding that Asia was leading the recovery.

"This will be a gradual ramp-up, which is not typical," he said. "Usually, the first few quarters as you work your way out of a recession show a sharper improvement."

UPS forecast 2010 profit of $2.70 to $3.05 per share, an increase of 17 percent to 32 percent over 2009. The midpoint of the forecast was $2.87, higher than the average analyst estimate of $2.81, according to Thomson Reuters I/B/E/S.

Fourth-quarter results came in slightly above Wall Street's expectations, which analysts raised last month when UPS lifted its own targets, citing cost-savings and better-than-expected domestic and international demand.

The U.S. market, nonetheless, remains weak. Operating profit in the domestic package business fell 18 percent to $764 million in the fourth quarter, and first-quarter volume is flat so far, the Atlanta-based company said.

"UPS is a quality company, and it's going to survive, but don't let that mask the fact that this recession really hurt," said Edward Jones analyst Dan Ortwerth, who rates the stock at "buy." "That's three years worth of pain."

UPS and rival FedEx Corp (FDX.N) are both economic bellwethers because they move a huge chunk of U.S. shipping. In December, FedEx forecast current-quarter earnings below analysts' expectations, sending its shares down and raising concerns that U.S. economic recovery was still fragile.

UPS said fourth-quarter earnings fell to $1.26 billion, or 75 cents per share, from $1.38 billion, or 83 cents per share, a year earlier. Analysts on average were expecting 74 cents per share, according to Thomson Reuters I/B/E/S, after UPS last month raised its forecast to a range of 73 cents to 75 cents.

Fourth-quarter revenue fell 2.5 percent to $12.38 billion, compared with the analysts' average estimate of $12.25 billion.

UPS shares are up about 28 percent over the last year, about even with a 30 percent climb for the Dow Jones transportation average .DJT.

The company's shares rose 1 percent to $58.97 in afternoon New York Stock Exchange trading, while FedEx was 1.6 percent higher at $81.96.

(Reporting by Helen Chernikoff; Editing by Lisa Von Ahn and Maureen Bavdek)