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UPDATE 3-UPS profit hit by high costs to meet holiday deadlines

Sagarika Jaisinghani
Friday, 17 Jan 2014 | 11:15 AM ET

* Expects fourth-quarter earnings/shr $1.25 vs est $1.43

* Expects 2013 earnings/shr $4.57 vs $4.65-$4.85 forecast earlier

* Costs rose as deployed 30,000 more staff to get deliveries done

* Shares fall as much as 3.5 pct

(Adds analyst quote)

Jan 17 (Reuters) - United Parcel Service Inc warned its fourth-quarter earnings would fall well short of market forecasts as it spent up large to try to deliver a surge in parcels in time for Christmas.

The world's No.1 package delivery company's shares fell as much as 3.5 percent in early trading on Friday after it admitted struggling with severe winter storms, a surge in last-minute orders and a shortened holiday shopping season.

The company hired 30,000 extra workers to try to get all the parcels delivered on time by its brown vans, more than 50 percent more temporary staff than planned. Extra equipment was also used to try to get gifts delivered on time.

"We think UPS did a poor job forecasting the holiday season," S&P Capital IQ analyst Jim Corridore wrote in a note.

UPS said on Dec. 25 it had been overwhelmed by a high volume of holiday packages, delaying the arrival of Christmas presents around the globe.

UPS said it delivered more than 31 million packages on Dec. 23 - its highest daily tally ever and 13 percent more than its peak day in the previous year.

There were six fewer days between Thanksgiving and Christmas and a rise in retailer discounts at the end of the holiday season led to a surge in last minute orders.

As well, ice storms and heavy snow snarled roads and airports.

UPS estimated fourth-quarter diluted earnings of $1.25 per share, well short of the $1.43 per share expected by Wall Street, according to Thomson Reuters I/B/E/S.

The company estimated full-year earnings of $4.57 per share, below its previous forecast of $4.65-$4.85. The average market expectation had been for a profit of $4.75 per share.

UPS has also been hurt by retailers cutting back express shipping. This cuts margins courier companies such as UPS, which charge more for faster shipping.

"A little more planning needs to go into retailers promising when the deliveries will arrive and maybe a little bit more collaboration with the shippers to make sure that it does get there on time," Telsey Advisory Group analyst Joshua Herrity said.

Shipment volumes and forecasts at UPS, along with rival FedEx Corp, are closely watched by Wall Street and considered an indication of overall economic health because of the vast amount of goods they transport.

The company said it was confident of its 2014 outlook. UPS expects full-year diluted earnings to rise by 10-15 percent, implying a profit of $5.02-$5.26 per share. Analysts were expecting $5.48.

Corridore said he expects the company to be more prepared this year as online shopping continues to grow.

Shares in UPS, due to report results on Jan. 30, fell to as low as $97 on the New York Stock Exchange before rebounding to $98.59 by mid-morning.

(Editing by Joyjeet Das and Rodney Joyce)