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UPS Profit Rises on Supply Chain, Freight Growth

United Parcel Service Tuesday posted a better-than-expected profit, citing growth in its global business, supply chain and freight unit plus modest growth in its U.S package business despite a "sluggish" economy.

A hydraulic hybrid UPS delivery truck is seen with the Philadelphia skyline in the background during a demonstration in Philadelphia, on Friday, June 23, 2006. The UPS truck uses an Environmental Protection Agency patented hydraulic hybrid technology that the EPA claims will increase fuel efficiency by 60 to 70 percent. Full hydraulic hybrid technology means that the conventional transmission and transfer case have been removed and replaced with a hydraulic drivetrain. (AP Photo/Matt Rourke)
Matt Rourke
A hydraulic hybrid UPS delivery truck is seen with the Philadelphia skyline in the background during a demonstration in Philadelphia, on Friday, June 23, 2006. The UPS truck uses an Environmental Protection Agency patented hydraulic hybrid technology that the EPA claims will increase fuel efficiency by 60 to 70 percent. Full hydraulic hybrid technology means that the conventional transmission and transfer case have been removed and replaced with a hydraulic drivetrain. (AP Photo/Matt Rourke)

Although UPS' results should continue to be driven by its international business and gains at the supply chain and freight unit, Chief Financial Officer Scott Davis warned in a statement that "slowing retail sales will restrain U.S. domestic volume growth." Davis is slated to become the company's chief executive in January.

But in an interview with Reuters, Davis said he expects U.S. economic growth to be a "little better" in 2008 than in 2007.

Like main rival FedEx, UPS is seen as a bellwether of U.S. economic health based on the premise that package volumes rise in a more vibrant economy and fall when growth slows.

The world's largest package-delivery company reported third-quarter net income of $1.08 billion, or $1.02 a share, compared with $1.04 billion, or 96 cents a share, a year earlier.

Excluding a $46 million restructuring charge and related expenses for a supply-chain business in France, earnings per share for the quarter amounted to $1.05.

Analysts on average had expected earnings per share for the quarter of $1.02, according to Reuters Estimates.

The Atlanta-based company reported third-quarter revenue of $12.21 billion, up from $11.66 billion a year earlier. Analysts had expected revenue for the quarter of $12.24 billion.

"The story at UPS is steady as she goes despite some choppy waters in the freight market," said Keith Schoonmaker, an analyst at Morningstar.

Revenue at UPS' U.S. domestic package business rose 2 percent to $7.55 billion. UPS' international package business increased 12 percent to $2.53 billion and sales at the company's supply chain and freight unit rose 6 percent to $2.13 billion.

"I am impressed at how UPS has turned supply chain and freight into a profitable operation despite a depressed less-than-truckload market," Morningstar's Schoonmaker said.

UPS Freight is a less-than-truckload operator. Less-than-truckload companies consolidate smaller loads into a single truck and, like the rest of the U.S. truck market, has seen weak freight volumes since the third quarter of 2006.

CFO Davis said UPS Freight's growth had come from taking less-than-truckload market share, which he said should continue for the "next several years."

UPS expects full-year earnings per share in a range of $4.13 to $4.19. Analysts had predicted full year earnings per share of $4.15.

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