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UPS profit rises on higher margins, ecommerce

David Abney, chief executive officer of United Parcel Service Inc.
Michael Nagle | Bloomberg | Getty Images
David Abney, chief executive officer of United Parcel Service Inc.

United Parcel Service reported a better-than-expected quarterly net profit on Thursday, boosted by rising U.S. ecommerce as consumers ordered more goods online, and the package delivery company reiterated its full-year 2016 outlook for earnings per share.

But executives warned that if a pension fund's proposed benefit cuts for participants gets federal government approval, UPS would have to record a charge of up to $3.8 billion this year.

Like its main rival, FedEx, UPS is often seen as a bellwether of U.S. economic activity.

The Atlanta-based company posted first-quarter net income of $1.13 billion or $1.27 per share, up 10 percent from $1.03 billion or $1.12 per share a year earlier. Analysts had on average expected earnings per share for the quarter of $1.22.

"What really is driving UPS right now is of course ecommerce, and the features that we've added over the past few years to enable ecommerce to be more efficient," Richard Peretz, chief financial officer of UPS, said on CNBC's "Squawk on the Street" on Thursday. "In fact, if you look at our results, our cost per piece is coming down, and we're really creating great economics for ecommerce today."

The Atlanta-based company said "high demand from ecommerce shippers contributed to fast growth" in packages delivered to consumers during the quarter, pushing revenue in the company's crucial U.S. domestic business up 3.1 percent.

The world's largest package delivery company also boosted profitability at its international package business, but revenue was down 1.9 percent in part due to the strong U.S. dollar.

Revenue at UPS' supply chain and freight was up 10 percent, due mostly to its acquisition of Chicago-based truck broker Coyote Logistics in the third quarter of 2015.

"We actually had some of the best yield revenue growth per package in international this year — more than we've had over the last two years," Peretz said to CNBC.

The company said that its truckload brokerage business is performing well despite a "market that remains soft."

The company reiterated its full-year earnings outlook, saying it expected to earn between $5.70 and $5.90 per share in 2016. Analysts on average expected full-year 2016 earnings per share of $5.78.

Executives told analysts it is challenging a plan by the Central States Pension Fund to cut benefits to its participants, including some UPS employees, because the company does not believe the proposed reduction complies with the law.

CFO Peretz said if the U.S. Department of the Treasury approves the proposed Central States pension reduction, UPS would be required to record a charge of between $3.2 billion and $3.8 billion later this year.

In early trading, UPS shares were down 1.6 percent at $104.86. (Get the latest quote here.)

— CNBC's Akane Otani and Reuters contributed to this story.