UPS profit beats estimates, raises outlook

The UPS logo is seen outside their facility in Hodgkins, Illinois December 16, 2010.

NEW YORK (Reuters) - United Parcel Service (UPS.N) posted a higher-than-expected quarterly profit as it raised rates and kept a lid on costs, helping margins even as fuel prices spiked.

The world's largest package delivery company also raised its 2011 forecast above Wall Street estimates and said customers had shown little resistance to its net rate hikes of 4.9 percent so far this year. Its shares rose 1 percent.

UPS noted, however, that it remained concerned about how much longer and higher oil prices will rise and whether that will stifle consumer demand.

"They're getting better volumes as more people are shipping, they've raised rates and they are getting a fuel surcharge to recoup higher oil prices," said S&P equity analyst Jim Corridore, praising UPS for increasing revenue faster than costs in an uncertain environment.

"It's really encouraging to see them improve profitability at a time when GDP growth is not as robust as they had earlier hoped."

UPS forecasts record 2011 results despite what it calls a "cloudier" economic outlook than it saw three months ago.

It said it had delivered 14.96 million packages a day in the first quarter, up 2 percent from 14.9 million a year earlier.

Daily U.S. domestic deliveries fell to 12.7 million from 12.73 million, while international deliveries rose to 2.3 million from 2.2 million.

Higher rates and surcharges boosted revenue from U.S. domestic deliveries by 6.2 percent. International delivery revenue rose 10 percent because of these factors, partly offset by currency fluctuations.

"Given fears over weather and fuel in the quarter, this was a very solid report," said Jefferies & Co analyst Peter Nesvold.

(For a graphic, click r.reuters.com/hys29r)

Besides rate hikes, UPS benefited from technology that enabled it to reroute packages during repeated weather disruptions and burn less fuel by minimizing driven miles, Chief Financial Officer Kurt Kuehn said in an interview.

While the global economy has withstood Japan's crisis, higher fuel costs and North Africa and Middle East unrest, he said, UPS remains cautious about future growth and will continue to gain revenue by cutting costs.

"We did increase our guidance somewhat for the year, not so much based on expectation of the economy getting much stronger but really on confidence in our execution," said Kuehn. "The economy has been resilient, but we don't see things getting much stronger -- just continuing to grow moderately."

U.S. consumer confidence improved in April as the employment picture brightened.

Atlanta-based UPS raised its 2011 earnings forecast to a record $4.15 to $4.40 per share from its February estimate of $4.12 to $4.35.

UPS handles goods equal to 6 percent of the U.S. gross domestic product and 2 percent of global GDP in its trucks and planes, so its shipment trends give a tangible view of consumer demand.

The most important figure in UPS's results, Nesvold said, was a 5.2 percent rise in global revenue per package from a year earlier, compared with the analyst's expectation of 3.7 percent.

The economic bellwether's first-quarter net income rose to $885 million, or 88 cents per share, from $533 million, or 53 cents per share, a year earlier. Analysts on average had expected 85 cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose to $12.58 billion from $11.73 billion, below analysts' expectations of $12.72 billion.

UPS looks for the global economy to outperform that of the United States. In the first quarter, it added flights, such as direct between Hong Kong and Europe, to tap into growing international trade.

Chief Executive Officer Scott Davis is a member of the President's Export Council, whose goal is to double U.S. exports by 2015.

Supply chain disruptions caused by Japan's March earthquake and tsunami have not had a big impact on UPS volume or revenue, the company said.

Shares of UPS were up 1 percent at $74.45 in afternoon trading and have gained a similar percentage this year. The stock lags the Dow Jones transportation average's .DJT year-to-date increase of 5 percent.

Shares of FedEx (FDX.N), the No. 2 package delivery company, rose 0.8 percent to $94.65, up 1.7 percent so far this year.

(Editing by Lisa Von Ahn)