UPS Profit Slides on Harsh Weather -- Update

By Erin McCarthy 

United Parcel Service Inc. posted a lower first-quarter profit, pointing to unusually harsh weather that increased its expenses and slowed its revenue growth.

The shipping giant said it expects its full-year earnings to hit the low end of its earlier forecast of $5.05 to $5.30 a share. However, the company should be back on track for the rest of the year, said Kurt Kuehn, UPS chief financial officer.

"We are encouraged by the positive trends in our business and expect the remainder of the year to perform as we originally guided," he added.

The entire U.S. freight and transportation industry took a hit from severe weather this year. Package-delivery companies suffered from the wintry conditions, analysts said, because of the time-sensitive nature of their domestic delivery networks and the sheer mass of deliveries affected.

UPS said the weather dragged down its operating profit by about $200 million. Last month, competitor FedEx Corp. said weather dented its operating income by about $125 million.

"Much of the U.S. economy was negatively affected by the severe weather conditions in the first quarter, resulting in lower UPS operating results versus the prior year," said Scott Davis, UPS chairman and chief executive.

The company's U.S. domestic package business reported $927 million in operating profit, down by $158 million from a year earlier. UPS added that it experienced lost revenue and additional cost as a result of significant network disruptions on more than half of the operating days during the quarter. The company's operating expenses climbed 3.5% in the first quarter.

Overall, the shipper reported earnings of $911 million, or 98 cents a share, down from $1.04 billion, or $1.08 a share, a year earlier.

Revenue rose 2.6% to $13.8 billion.

Analysts polled by Thomson Reuters recently expected adjusted earnings of $1.08 a share on revenue of $13.91 billion.

Average daily shipments in the U.S. climbed 4.2%, driven primarily by large e-commerce shippers using lightweight deferred shipping services.

The company did find a bright spot in its international package business, which reported a 5% increase in revenue to $3.13 billion. The segment's operating margin expanded to 14% on daily volume growth of 7.9%, UPS said.

Its supply chain and freight business posted a 1% decline in revenue, though its operating profit increased 3.5% to $148 million, UPS said.

The stock is down 5.6% so far this year.

Write to Erin McCarthy at [e-mail]

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