UPS to Take Pre-Tax Charge on New Labor Contract-- 2nd Update

By Laura Stevens and Erin McCarthy 

United Parcel Service Inc. became the latest delivery company to report a difficult quarter due to the winter weather, saying it cost the company about $200 million.

Severe weather conditions affected about half the working days during the quarter, prohibiting some U.S. employees from working, executives said during a conference call with analysts. The impact is expected to push the entire year's profits to the lower range of the company's previous forecast of between $5.05 and $5.30 per share.

"I don't think there is a person in the country who is more happy about seeing spring weather return, and as a result of it, in April, both our productivity and service has returned to normal levels," said Myron Gray, head of U.S. operations.

UPS said Thursday evening it would record a pre-tax charge of $1.05 billion associated with a new labor contract in the second quarter largely due to changes to the company's health and welfare plans.

The changes will also allow it to remove about $1.2 billion in retiree health-care liability for active employees from its balance sheet. Without the new contract, UPS said it estimated health-care costs would have continued to increase 8% per year.

During the call, Chief Financial Officer Kurt Kuehn said that the company had already factored these charges into its earnings forecast for the year.

During the earnings call, executives discussed plans to improve its performance during this year's busy holiday season. In addition to making permanent changes, such as increasing the space to unload trailers at its Louisville, Ky., air hub, it is also adding about 6,000 new parking spaces to load and unload its delivery trucks, an increase of 10%.

The company also is in talks with retailers to better forecast package flow, he added. UPS said it is investing around $600 million to improve its network and technology to avoid problems this year.

On Wednesday, the national union representing UPS package-delivery employees overrode three local bargaining units that had delayed approving parts of a five-year national contract. The new master contract should take effect on Friday.

For the first quarter, the shipper reported earnings of $911 million, or 98 cents a share, down 12.4% from $1.04 billion, or $1.08 a share, a year earlier. Revenue rose 2.6% to $13.8 billion.

The company's U.S. domestic package business reported $927 million in operating profit, down by $158 million from a year earlier. The international business was a bright spot, reporting a 5% increase in revenue to $3.13 billion.

Write to Laura Stevens at [e-mail] and Erin McCarthy at [e-mail]

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