UPS says post-holiday spending by consumers helped boost 1Q profit by 7 per cent over last year

DALLAS – Consumers who kept spending after the holidays ended helped boost profit at UPS.

United Parcel Service Co. said Thursday that first-quarter profit rose 7 per cent to $1.04 billion. Its adjusted profit beat analysts’ expectations and shares rose more than 2 per cent.

Daily package volume in the U.S. increased and company revenue rose 2.3 per cent to $13.43 billion. But international revenue was flat as some customers switched to cheaper shipping options.

Big delivery companies including UPS are seen as gauges of the economy because of the wide range of products they ship, everything from auto parts to consumer electronics.

A big part of UPS’ business involves delivering packages from retailers to consumers, especially for gifts purchased before the holidays.

“The last couple of years we’ve begun seeing this phenomenon where there’s continued buying after Christmas, and it really peaked this year into the second week of January,” Chief Financial Officer Kurt Kuehn said in an interview.

Kuehn said the January increase was a combination of consumers shopping for post-holiday bargains, people returning gifts, and others making purchases with gift cards.

UPS’ net income worked out to $1.08 per share, compared with $970 million, or $1 per share, a year ago. Excluding special items including those related to a failed attempt to buy Dutch delivery company TNT Express, the company would have earned $1.04 per share. That topped the $1 per share that analysts expected, according to a FactSet survey.

Atlanta-based UPS maintained its outlook for a 2013 adjusted profit between $4.80 and $5.06 per share. Analysts expect $4.98 per share.

Standard & Poor’s analyst Jim Corridore said UPS was hurt in the first quarter by a shift toward less-profitable shipping services, “but volume growth was encouraging.”

UPS’ international air freight business continued to face pressure from customers opting for slower but cheaper delivery options, particularly in Asia.

Closer to home, airlines have struggled this week with delays caused by a slowdown in the federal air traffic control system. The Federal Aviation Administration began furloughing controllers on Sunday to comply with automatic government spending cuts.

Executives said UPS wasn’t affected by the slowdown because many of its cargo flights are at night when control towers are less hectic. They did express concern that budget cuts could eventually reduce shipments by the federal government, a big customer.

Earlier this week, rival FedEx Corp. announced that it had kept a 7-year, $10.5 billion contract to deliver air mail for the U.S. Postal Service. UPS had attempted to win that work and said it was disappointed in the outcome but continued to hold other contracts with the post office.

UPS also announced that it will buy Hungarian pharmaceuticals-delivery company Cemelog Zrt. Financial terms were not disclosed. The sale is expected to close in the second quarter.

Earlier this year, UPS withdrew a $6.7 billion offer for TNT Express NV after European antitrust regulators blocked the deal. TNT would have been UPS’ largest acquisition.

Kuehn said the Cemelog acquisition would strengthen UPS in Eastern Europe and in delivery of medicines and medical devices. He said it was not meant as a makeup for the failed TNT deal.

Shares of UPS rose $$1.92, or 2.3 per cent, to $85.42 in trading Thursday.