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UPS: What to Do With Cash Pile?

Looking ahead, UPS said it expects to earn between $2.70 and $3.05 a share in the current year, an increase of 17% to 32% over 2009 results. Analysts were estimating $2.81. In 2010, "we see a story of a gradually firming economy with pricing for UPS continuing to get stronger and stronger, and ultimately this restructuring (savings) beginning to kick in late this year," Kuehn said.

Still, UPS is cautious on the first quarter. Why? Because companies that print money know they can afford to be conservative. In this case, UPS has chosen not to extrapolate all of its fourth-quarter gains into the first quarter.

"Momentum may slow a bit" after a surprising December uptick that included a holiday rush with eight days of transporting more than 22 million packages, Kuehn said. Additionally, it is unclear whether unprecedented demand in Asia will continue.

In the fourth quarter, net income was $757 million or 75 cents a share. Analysts surveyed by Thomson Reuters had estimated 74 cents. Revenue declined 2.5% to $12.38 billion. Analysts had estimated $12.2 billion. UPS pre-reported on Jan. 8 that it would earn between 73 cents and 75 cents a share. Its original guidance was 58 cents to 65 cents a share. In the same quarter a year earlier, UPS earned $254 million or 25 cents a share.

Standard & Poor's analyst Jim Corridore reiterated a buy on UPS Tuesday, saying "with lower capex over the next few years, UPS should generate significant free cash, which we think will lead to increased share repurchase activity." Shortly before midday, UPS stock was trading up 18 cents at %58.57.

-- Written by Ted Reed in Charlotte, N.C. .

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