UPS profits rise; economic future cloudier

Despite rising fuel costs, bad weather and disruption in Japan, UPS saw its profits grow as it noted cloudier signs of economic improvement ahead.

The Atlanta-based logistics company saw greater freight shipments and a modest increase in package weights as the economy began to improve, but UPS chief financial officer Kurt Kuehn said the domestic U.S. recovery has been "a little bit hollow."

Kuehn said the largest global companies have come back more quickly than smaller and medium-size enterprises, where credit is sometimes harder to access. Still, he said as credit loosens and the unemployment rate dips, he expects more movement from smaller companies.

UPS saw its per-package revenue rise, primarily on the backs of rate increases and an increasing fuel surcharge. Kuehn said the company is now finding it possible to return to its normal rate structure, noting that the recession, and an earlier jump in fuel prices, meant the company had to be more flexible in its pricing.

"We're pleased about our ability to generate good results," he said. "Our confidence in UPS' ability to continue growing has improved."

For the quarter, UPS earned $885 million, or 88 cents a share. That's a 66 percent increase from $533 million, or 53 cents a share, in the first quarter of 2010.

The company updated its guidance for the year and expects to earn between $4.15 and $4.40 a share in 2011. It had previously expected to earn $4.12 to $4.35 per share.

Still, Kuehn said the company is paying attention to fuel costs, which have the potential to be a drag on the economic recovery.

"We're a little more cautious than we were at the beginning of the year," he said. "We're not gloomy, we're just slightly more cautious."

Jeff Kauffman, managing director for transportation research at Sterne Agee & Leach, said UPS didn't miss a beat this quarter. Fuel prices, winter storms and a later-than-usual Easter had an impact on the company's bottom line, but UPS managed to reduce its miles driven by 2 percent and the number of hours its employees worked by 3 percent.

"This company did a better job than most others of taking what the economy was going to grant it," he said. "They did an excellent job of controlling costs."

Kuehn said UPS continues to see international growth, having added capacity in its Asia network and expanded its express air freight services to Israel and Slovakia.