International Markets Save UPS - TheStreet

International Markets Save UPS

Second-quarter earnings tick past estimates.
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Updated from 8:50 a.m. EDT

UPS

(UPS) - Get Report

said second-quarter net income rose 4.1% as a strong international performance and encouraging supply-chain trends overcame a challenging domestic package market.

The largest overnight package carrier reported net income of $1.1 billion, or $1.04 a share, for the quarter. Analysts had estimated earnings of $1.03. Revenue rose 3.9% to $12.19 billion, compared with analyst estimates of $12.23 billion.

The company said export revenue climbed 14% on double-digit volume growth, while UPS Freight less-than-truckload revenue was up 10.5% on a 12% increase in shipments. Operating margins increased to 14.5%.

"Strong gains in our international package segment offset a lack of growth in the U.S. business," said CEO Mike Eskew, in a prepared statement.

In the domestic package unit, operating profit declined to $1.19 billion from $1.23 billion. Ground volume was flat during the quarter, reflecting declining growth in both industrial production and business-to-business consumer shipments, the company said.

On a conference call, CFO Scott Davis called those trends "an aberration" that should disappear by the end of the year. UPS saw improvement in June and the first two weeks of July, he said. "We thought the first quarter was a low point for the domestic small package market,

but we were probably a month or two off on that."

As for the international package unit, operating profit rose 14.7% to $475 million as Asia export volume jumped 25%, with particularly robust growth out of China. In supply chain and freight, operating profit rose to $98 million from $47 million.

Looking forward, UPS expects to earn between 99 cents and $1.04 a share in the third quarter. The mean estimate is $1.02, and the Thomson Financial range is 98 cents to $1.03.

Davis reaffirmed the company's annual target of a 6% to 10% increase in EPS growth.

"Toward the end of the year, we expect the small-package market to more closely correlate to U.S. economic trends, and as a result, we should see gradual volume growth in our U.S. package business," he said, in a prepared statement.

During the quarter, UPS repurchased 21 million shares, reducing total shares outstanding by 1.7%.

UPS was up 1.5% to $75.69.