UPS expects record profit, "slow-growth economy"


LOUISVILLE, Kentucky (Reuters) - United Parcel Service Inc Chief Executive Scott Davis said the world's largest package delivery company is on track for record results this year in the face of the economy's "bumpy ride" and expectations for sluggish economic growth.

Analysts were concerned that package delivery companies such as UPS and rival FedEx Corp would fall short because of the economy and plummeting consumer sentiment. Even as the company repeated its expectations, concerns about near-term economic growth appear to be clouding the reaction of investors.

UPS shares closed at $66.18, essentially flat compared with the prior session. The Dow Jones Industrial Average was up about 1.6 percent, while FedEx was about 1.4 percent higher at $77.08

Since peaking in February, UPS shares have fallen 14 percent. FedEx shares have fallen 22 percent in that same time period.

"The last few months, we've seen a bumpy ride that may likely continue," Davis said. "Despite this great uncertainty UPS still expects to set a new high for EPS this year."

UPS repeated its forecast in July for record earnings per share of between $4.15 and $4.40, citing cost cuts and higher rates.

"The odds are higher than six to nine months ago, but I don't expect a double-dip," Davis told reporters at the close of the investor meeting. "I expect a slow-growth economy."

Davis and other UPS executives spoke at the Atlanta-based company's first investor meeting in more than three years.

The company's outlook, in spite of an unsettled global economy, follows similarly bullish comments by diesel engine maker Cummins Inc on Tuesday.

General Electric Co Chief Executive Jeff Immelt said earlier on Thursday he sees "good, decent economic growth everywhere," including in the United States, and is not worried about the economy slipping back into recession.

Chief Financial Officer Kurt Kuehn said UPS remains cautious.

"We do remain cautious on the U.S. economy, but our expectation is that we have another year, year and a half, of sub-par growth and then we'll return" to pre-recession trend growth levels of 2.5 percent to 3 percent, Kuehn said.

Two expected UPS growth drivers are global trade that creates jobs and healthcare logistics, which the company is investing in heavily and which Davis said is in the "early innings of outsourcing."

"America is fed up and I am hopeful, maybe naively, that we will start seeing some policy decisions" shortly, particularly on global trade policies, Davis said, adding that one UPS job is created for every 22 packages that cross international borders.

"Consumer confidence, consumer trust in Washington, can't get much lower than it is right now," Davis said.

UPS's small-business customers will start hiring once there is some clarity, he added.

U.S. postal service downsizing and U.S. defense spending constraints that lead to greater outsourcing by the U.S.P.S. and the military are also growth opportunities, Davis said.

Kuehn said shippers continue to keep inventory light, suspicious of consumer demand heading into this peak season, but the slow and stable U.S. domestic business is in line with its forecasts.

UPS expects earnings per share to rise 10 percent to 15 percent and revenue to increase 6 percent to 8 percent annually from 2011 to 2016. Its capital spending will be 4 percent of revenue over the same period, focused more on growth than on maintenance.

The company also said on Thursday it is expanding capacity by 65 percent at its hub in Cologne, Germany.

On Wednesday, it announced a service that enables greater control over the timing of package delivery for residential consumers. Consumers will get alerts via text message and other means, as the company offers free and premium options to make missed deliveries a thing of the past.

Kuehn said UPS has been buying back shares at discounted prices and raised the full-year estimate by $700 million to $2.7 billion. Buybacks should reach about $8 billion between 2012 to 2014 and return on invested capital is expected to be at least 25 percent by 2014,

The investor meeting is being held at UPS's Worldport, the base for its international air express hub, its airlines headquarters and its largest distribution facility.

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