UPS Profit Falls on Shift to Lower Cost Services

DAVID KOENIG | AP Business Writer

DALLAS (AP) – UPS said Tuesday that second-quarter profit fell 4 percent as customers shifted from premium toward lower-priced shipped services.

The company called the results disappointing and said it was adapting to the changing market.

Atlanta-based United Parcel Service Co. and rival FedEx Corp. are losing some high-priced business as international shippers switch from premium next-day air deliveries to two-day or three-day services. UPS Chairman and CEO Scott Davis told analysts on a conference call that the shift could be temporary due to a lack of new technology products from Asia.

"On the other hand, some of the trade-down is likely permanent," Davis added, because of improved manufacturing supply chains and more global trade among nearby nations.

For pallet-size international shipments, cargo carriers such as UPS are facing more competition from passenger airlines, which are loading more freight in the bellies of their new, wide-body jets. Since the airlines are operating the flights anyway, they often charge lower freight rates to fill up the cargo holds.

UPS said that it earned $1.07 billion, or $1.13 per share, down from $1.12 billion, or $1.15 per share, a year earlier.

The delivery company tipped off investors about the headline number two weeks ago, so analysts were expecting the lower earnings per share.

Revenue rose 1.2 percent to $13.51 billion but was lower than expected. Analysts had forecast $13.59 billion, according to a FactSet survey. Costs rose 2 percent.

The company predicted that earnings per share will grow by between 4 percent and 13 percent during the second half of this year compared with the same period in 2012. UPS still expects a full year adjusted profit of $4.65 to $4.85 per share, which would be an increase from $4.53 per share last year.

UPS, with a fleet of jets and an armada of brown trucks, delivered 15.7 million packages a day during the quarter, up 2.3 percent.

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