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Revenue Falls Short at UPS

First-quarter earnings are in line.
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Updated from 9:17 a.m. EDT

A weaker U.S. economy and special charges led


(UPS) - Get United Parcel Service, Inc. Class B Report

to report a decline in first-quarter net income, despite strong international growth.

The largest package delivery company reported earnings of $843 million, or 78 cents a share. Revenue was $11.9 billion, up 3.3%. In the same quarter a year earlier, net income was $975 million, or 89 cents a share.

Two one-time items reduced diluted earnings by 18 cents a share. The items included a charge for the accelerated retirement of Boeing 727 and 747 aircraft, as well as a charge for a voluntary worker-separation program.

Excluding those costs, UPS would have earned 96 cents, meeting the Thomson Financial consensus target. Revenue, however, was a bit shy of the $12.1 billion expectation.

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UPS shares rose $1.07, or 1.5%, to close at $73.

On a conference call, executives reiterated that a vast discrepancy exists between the company's international and domestic segments. International was "terrific," said CFO Scott Davis.

Excluding adjustments, the international-package segment earned $440 million, its second-strongest quarter ever, on revenue of $2.39 billion. Davis said exports from China rose more than 25% for the quarter, while Europe had double-digit export growth.

Domestically, "the economy slowed more than we anticipated three months ago," Davis said, as capital goods orders showed a sharp decline and retail sales moderated. "The quarter was somewhat of an anomaly

because the small-package market appeared to underperform the overall economy," he noted. Additionally, bad weather cost the company about a penny a share.

UPS's domestic package unit reported an operating profit, excluding special items, of $1.15 billion, down from $1.19 billion a year earlier. Next-day air volume declined marginally, while ground volume was unchanged.

In the supply chain and freight segment, revenue was $1.97 billion and the adjusted operating profit was $54 million, compared with a loss of $25 million a year earlier.

Looking forward, UPS projected second-quarter earnings in a range of $1 to $1.05 a share. Analysts expect $1.04 a share. The company reaffirmed its annual target of a 6% to 10% increase in earnings per share.

Davis said he expects the economy "to stay at this level for a quarter or two," but said the worst is over in the small-package market. "Even if the economy stays at 2% for the rest of the year, we expect small package to grow at least 2%," he said.