United Parcel Service Inc (UPS.N) reported lower-than-expected quarterly earnings on Thursday and attributed the shortcoming to customers choosing slower delivery options and weak shipments from Asia.
Shares in the world's largest package delivery company fell as much as 3.8 percent on the results, which Chief Executive Scott Davis said reflected austerity measures in Europe and slowing growth from Asia.
"During the quarter the most positive news has come from the U.S. where indications of economic rebound are evident," Scott said on a conference call with analysts. The slowing Asia flows are a "temporary predicament" and volume started picking up in March, he added.
UPS affirmed its full-year profit outlook, and said pricing and more efficient deliveries would compensate for the shifting product demand from its customers.
"Customers are going toward slower delivery methods -- deferred delivery had strong growth" of about 10 percent, said Edward Jones analyst Logan Purk. "The international business is also definitely underperforming the domestic and that's impacting the results" particularly Asia exports.
New technology product launches in the quarter helped stabilize traffic out of Asia late in the quarter, UPS said.
"We do think certainly some of the large technology product launches helped to create a boost," UPS Chief Financial Officer Kurt Kuehn said in an interview. "We have seen demand stabilize and we think things are firming up a bit in Asia and we feel pretty good that it won't be quite as challenging going forward."
IPhone sales, especially in the greater China region, helped propel Apple Inc's (AAPL.O) quarterly earnings sharply higher in the quarter.
Atlanta-based UPS's lagging international performance in the midst of its biggest takeover in its nearly 105-year history.
UPS announced in March that it will buy Dutch peer TNT Express TNTE.AS for about $6.8 billion to broaden its international footprint, becoming the market leader in Europe and increasing its access in Asian and Latin American markets.
The deal, which Davis said was "making good progress", will expand UPS's revenue outside the United States to 36 percent of its total, from 26 percent currently.
"Some people might argue that with TNT you buy a distressed asset at the bottom," Purk said. "But we all know they didn't get a fire-sale price, they paid a premium. With Europe, most people think it is entering another recession, and this may weigh on results to a degree."
UPS said net profit rose 6 percent to $970 million, or $1.00 per share in the first quarter, from $915 million, or 91 cents a share, a year earlier. Analysts had expected a profit of $1.01 per share, on average, according to Thomson Reuters I/B/E/S.
The company maintained its 2012 forecast of $4.75 to $5.00 earnings per share.
UPS has added services such as My Choice, in which customers have greater control over the timing of their deliveries, to increase demand as on-line shopping escalates -- meaning fewer missed packages it curbs UPS's shipping costs.
"It's our job for those products that are lower-priced to make sure that they're also lower cost," Kuehn said.
Total revenue rose 4.4 percent to $13.14 billion in the quarter, just shy of the $13.26 billion average forecast according to Thomson Reuters I/B/E/S.
Domestic revenue rose 6.2 percent while international revenue increased 2.3 percent.
In the international segment, UPS said weakness out of Asia and increased intra-regional volumes hurt revenue per piece.
"Increases in revenue per piece caused by higher base rates and fuel surcharges were mostly offset by changing product and customer mix as lower-margin e-commerce continued to drive volume growth" in the domestic business, UPS said.
Lightweight ground shipments increased, also curbing revenue per piece, UPS said.
In addition to online sales, which tend to consist of lighter packages, letter product volume rose as mortgage refinancing applications started to pick up, Kuehn said.
UPS and No. 2 parcel delivery company FedEx (FDX.N) are viewed as economic bellwethers because of the volume of goods they handle. The value of packages that UPS moves in its trucks and planes is equivalent to 6 percent of U.S. gross domestic product and 2 percent of global GDP.
FedEx in March lowered its full-year outlook on expectations of below-trend growth globally and a mild Euro-zone recession.
It has since announced it is in talks to buy French express company TATEX and that it planned to buy family owned Polish shipping company Opek Sp. Z o.o., expanding in Europe with small takeovers.
UPS shares were down 3.3 percent in midday trading at $76.98 on the New York Stock Exchange. The shares reached a six-year high of $81.79 in March after the TNT agreement was announced.
(Reporting By Lynn Adler; Editing by John Picinich and Maureen Bavdek)