The Wall Street Journal-20080131-Earnings Digest- UPS Posts Loss on Pension Charge- Higher Growth Is Seen In Domestic Shipping Amid Tough Climate
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Earnings Digest: UPS Posts Loss on Pension Charge; Higher Growth Is Seen In Domestic Shipping Amid Tough Climate
Full Text (499 words)United Parcel Services Inc. posted a $2.58 billion fourth-quarter loss owing to a one-time pension charge related to a recent labor agreement. The package handler also warned that economic conditions will be tougher this year than in 2007.
The Atlanta company said that there is more uncertainty in the U.S. economy than there was a year ago, adding that the profit outlook in the first quarter of the year will be hurt by an early Easter cutting down on business and by interest expenses. But for the full year the company, a key barometer of economic health, is projecting higher growth in domestic shipping volume and steady operating margins. UPS also expects to slightly increase its capital spending this year.
"We expect a sluggish but not a negative economy," Chief Financial Officer Kurt Kuehn said in an interview. "It is a challenging time, but we feel we're well positioned," he added, noting optimism about the company's domestic and international operations, as well as the benefits of having the labor issue resolved.
In the fourth quarter, a new five-year contract with the International Brotherhood of Teamsters was ratified. As part of the deal, UPS paid $6.1 billion to withdraw about 45,000 employees from the Central States pension plan that covers workers at multiple trucking companies.
As a result of the charge, UPS posted a fourth-quarter net loss equivalent to $2.46 a share. Excluding the pension charge, the company's profit rose 6% to $1.20 billion, or $1.13 a share, largely on the strength of its international business and improved performance of its supply chain and freight business. Revenue increased 6% to $13.39 billion. The profit figure was in line with Wall Street expectations, while revenue was slightly higher than anticipated.
Shares of UPS were up $1.10 at $72.02 in New York Stock Exchange composite trading at 4 p.m.
UPS, like many other U.S. companies with global operations, has relied on its overseas business to pick up the slack from the sagging U.S. economy as costs rise. UPS and other carriers have recently boosted rates to cover the cost of record fuel prices.
Mr. Kuehn noted that the company's fuel surcharges couldn't keep up with the rapid surge in fuel costs during the latest quarter. Rising fuel costs offset the benefit that the company received -- owing to a weak dollar -- from the repatriation of earnings.
UPS expects to post full-year per-share earnings in a range of $4.30 to $4.50. In 2007, earnings, excluding the impact of the pension payment, were $4.17 a share.
Mr. Kuehn said that the earnings estimate for the full year factors in about a 9-to-10-cent reduction owing to added interest expenses related to the lump-sum pension payout. The labor agreement is expected to be cost-neutral by 2009, and will provide a tailwind by 2010, Mr. Kuehn said.
UPS projects package volume growth in its domestic business -- which accounts for about 60% of overall revenue for UPS -- to grow between 1% and 2% this year.
