By Scott Malone
Jan 31 United Parcel Service Inc reported a
fourth-quarter net loss after taking a large pension-related
charge and forecast weaker-than-expected 2013 profit due to an
uneven global economy.
UPS on Thursday followed a stream of other big U.S.
companies such as Rockwell Automation Inc and Northrop
Grumman Corp that were also weighed down by
pension-related charges. A prolonged period of low interest
rates is driving up companies' pension costs.
Even factoring out the $3 billion noncash pension charge,
UPS, the world's largest package-delivery company, reported a
fourth-quarter profit that still missed Wall Street's
UPS said it faces a $225 million rise in pension costs this
"This will be a significant drag in 2013," Chief Financial
Officer Kurt Kuehn told investors on a conference call.
UPS expects earnings to rise 6 percent to 12 percent in 2013
to $4.80 to $5.06 per share, below the average Wall Street
target of $5.11.
"It's going to come down to worldwide economic growth," said
Helane Becker, an Dahlman Rose analyst, adding that she believed
the company would be in a position to raise its dividend this
A rise in interest rates could ease the pension headwind,
but Wednesday's report of an unexpected fourth-quarter
contraction in the U.S. economy could leave the U.S. Federal
Reserve inclined to hold rates low.
The Fed has kept interest rates for overnight loans between
banks steady at near zero for four years now. That has driven
down the rates companies use to calculate if they have enough
money to pay pension benefits due to millions of U.S. workers
when they retire.
"Interest rates will not stay that way forever. Clearly we
don't think they will remain that low for the duration of our
pension obligations," Kuehn said in an interview. "That's why we
characterize this as an effect that could just as easily turn
UPS officials said their pension plan remained fully funded,
adding that the company's required contributions are forecast to
decline over the next three years.
Shares of the Atlanta-based company were down 2 percent at
$79.59 on the New York Stock Exchange.
ECONOMIC 'MIXED SIGNALS'
The company posted a fourth-quarter net loss of $1.75
billion, or $1.83 per share, after the pension charge. A year
earlier, it had earnings of $725 million, or 74 cents per share.
UPS said costs related to Superstorm Sandy, which pounded
the New York metropolitan area in late October, sliced profit by
5 cents per share in the quarter.
Factoring out one-time, noncash items, profit came to $1.32
per share, below the analysts' average estimate of $1.38,
according to Thomson Reuters I/B/E/S.
"We remain in a cycle of mixed growth and mixed signals,"
Chief Executive Scott Davis told investors on a conference call.
"Fiscal uncertainty continues to erode business confidence and
growth prospects. This will continue until Washington starts to
The final weeks of the fourth quarter saw a standoff between
Democrats and Republicans over the "fiscal cliff," which had
threatened higher taxes and large spending cuts.
Morningstar analyst Keith Schoonmaker said one good sign in
the quarter was the 7.7 percent rise in U.S. next-day air
"We need to cut through the pension clutter and look at
economic results," Schoonmaker said. "This is a company that has
tremendous operating capability, so when you feed them a little
bit more volume into their system, this company is able to make
hay with that."
UPS' largest U.S. rival, FedEx Corp has been
struggling with falling profits as customers increasingly send
goods by ground, which is less costly and less profitable than
Because of the huge volume of packages they handle each day,
UPS and FedEx are viewed as barometers of economic activity.
Revenue rose 2.9 percent to $14.57 billion from $14.17
'MOVING ON' FROM TNT
Earlier this month, UPS dropped its $7 billion bid for Dutch
delivery firm TNT Express after European regulators
said they would veto the deal, citing antitrust concerns.
UPS, which had sought to expand quickly in Europe, will now
likely have to grow on its own to avoid running afoul of the
European Commission again.
"It would be an understatement to say that we are
disappointed by the decision of the European Commission to block
the acquisition," Davis said. "While we viewed the TNT
acquisition as a compelling growth platform and it consumed a
lot of internal resources, we are moving on."
UPS plans to buy back about $4 billion worth of stock this
year, roughly 5 percent of its current market capitalization and
more than the $1.5 billion it had previously said.
The company warned its forecast for 2013 did not include any
costs related to the failure of the TNT deal.
At Wednesday's close, UPS shares were up about 7 percent
over the past year, trailing the 14 percent rise of the Standard
& Poor's 500 index.