Updated from 7:56 a.m. EDT
reported third-quarter net income that rose 12%, and it projected similar fourth-quarter growth, but the parcel carrier said it must solve integration problems following mergers in its air freight and motor freight units.
The Atlanta-based company said net income for the quarter was $1.04 billion, or 96 cents a share, up from $953 million, or 86 cents a share, in the same period a year earlier. Revenue was $11.66 billion. Analysts surveyed by Thomson Financial had expected earnings of 90 cents a share.
UPS said it continues to benefit from an increase in global small-package volume, which rose 5% over last year, boosting daily shipments in its network by 721,000 packages. International profits rose 22%.
"The global small-package market should continue to outpace economic growth,
and we continue to anticipate strong profit growth," in the fourth quarter, CFO Scott Davis said on a conference call. He said holiday retail shipping will be "solid," with "good growth on the brick-and-mortar side" and even better growth on the e-commerce side.
Shares of UPS rose 4.3% to $75.55.
CEO Mike Eskew said the third quarter "came in stronger than anticipated," partially because of the company's success in reducing workers-compensation claims. However, he noted that two recent integrations have been "much more difficult than we anticipated."
The company meshed freight forwarder Menlo Freight into its supply-chain and logistics business and consolidated its western U.S. unit, Motor Cargo, with UPS Freight, formerly the operation of Overnight. As a result, UPS said its supply-chain and freight division saw an operating loss of $19 million and an operating margin decline of 0.9% in the third quarter. The unit had $2 billion in quarterly revenue.
Eskew said the freight-forwarding unit needs to alter its philosophy, "to move from a fill-up-empty-aircraft mindset to managing space available." In an effort to reduce nonoperating costs by 20%, the unit will lay off 1,200 of its 32,000 workers.
Meanwhile, the Overnight integration led to productivity setbacks and business losses, and "business fell well short of expectations during the third quarter," he said. Now, he said, the problems have been resolved.
Morningstar analyst Peter Smith said UPS benefited from improved pricing. Smith said pricing for packages shipped internationally to the U.S. climbed to $7.03 per piece, a 5.1% increase over a year ago. "It's a level they haven't reached since the first quarter of 2005, which is a very good sign for their economic strength and competitive position," Smith said.
"We still expect full-year diluted earnings-per-share growth of about 11%, despite the performance in the supply-chain and freight segment," Davis said in a press release that detailed UPS' earnings. "The small-package business should be strong in the fourth quarter, as we expect international deliveries and the U.S. holiday shipping period to be solid. We also anticipate modest improvement from the supply-chain and freight segment over third-quarter results."