UPDATE 3-UPS profit falls as brutal winter raises costs

Thu Apr 24, 2014 6:59pm EDT

* Q1 earnings per share $0.98 vs $1.03 yr ago

* Q1 costs up 4 percent to $12.27 bln

* Sees 2014 earnings per share at lower end of $5.05-$5.30 (Adds charge related to labor contract, closing share price)

By Sweta Singh

April 24 (Reuters) - United Parcel Service Inc, the world's biggest courier company, reported a 12 percent fall in quarterly profit due to increased overtime and transport costs related to a colder-than-usual winter in the United States.

The company warned on Thursday that full-year earnings were likely to come in at the lower end of its earlier forecast, citing the "challenging" start to 2014.

UPS also said it expected to record a pre-tax charge of about $1.05 billion in the current quarter as a result of changes to health and welfare plans for employees under a newly ratified labor contract. (link.reuters.com/kup78v)

UPS joins a growing list of companies, including closest rival FedEx Corp, that have blamed the harsh winter for weak results and a subdued outlook for 2014.

FedEx reported weak third-quarter results in March and cut its fiscal-year profit forecast, highlighting the impact that the brutal winter had on the shipping industry.

"The intensity of this year's winter storm season produced challenging conditions. We saw business-to-business shipments slow as manufacturers, distributors and retailers closed shop," Chief Executive Scott Davis said in on a call.

UPS, known for its brown delivery trucks, faced severe disruptions to its network as temperatures across a vast area of the United States ran 6-10 degrees Fahrenheit (3.3-5.5 degrees Celsius) below normal for more than 2 months.

"Clearly, UPS results in the US reflect both the lost revenue and the additional costs associated with these storms," Davis said.

Total operating expenses rose 4 percent to $12.27 billion, UPS said in a statement on Thursday.

Costs related to the weather reduced operating profit by about $200 million. Operating profit from U.S. domestic package fell 15 percent to $927 million.

Total revenue rose 2.6 percent to $13.78 billion in the quarter.

The company's net income fell to $911 million, or 98 cents per share, in the first quarter ended March 31, from $1.03 billion, or $1.08 per share, a year earlier.

UPS is also investing in technology to avoid a repeat of last Christmas when a surge in online shopping caught the company off guard and led to huge delays, frustrating customers who wanted their packages delivered on time.

The company had increased investments by $500 million to boost capacity, Chief Financial Officer Kurt Kuehn had told Reuters in an interview in January.

UPS had forecast 2014 earnings of $5.05-$5.30 per share in January. Analysts on average were expecting $5.18 per share, according to Thomson Reuters I/B/E/S.

Shares of the Atlanta-based company closed down 0.6 percent at $98.64 on the New York Stock Exchange. FedEx shares were also nearly flat.

UPS shares have fallen 6 percent so far this year, in line with the broader Dow Jones U.S. Delivery Services Index . (Additional reporting by Ankit Ajmera in Bangalore; Editing by Maju Samuel and Saumyadeb Chakrabarty)

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