UPS 'More Optimistic' on U.S. Economy

ATLANTA TheStreet) -- UPS ( UPS) said it reduced U.S.-Asia air cargo capacity by about 10%, but more recently it has become a bit more optimistic about the U.S. economy.

The trans-Pacific cutback was largely "driven by concern and uncertainty in the U.S." early in the third quarter, said CEO Scott Davis, on the company's earnings conference call Tuesday. "There was a lot of concern about a double-dip (and) people stopped buying" products from Asia and elsewhere.

As far as the economy, "I don't think it's as negative as it was two or three months ago," Davis said. "We are probably a little more optimistic than we were one or two months ago."

UPS is considered an important economic indicator because, at any moment, 2% of world gross domestic product and 6% of domestic GDP are being transported within its system.

Davis said it is increasingly difficult to discern what will happen during Christmas season because, "holiday season is down to just a few weeks in December now" as consumers increasingly delay purchases to the last minute. Retailers have "less buildup of inventories headed into peak season," he said, so UPS could potentially benefit from December restocking.

"We won't know until two weeks prior to Christmas," he said.

FedEx ( FDX) on Monday said it expects a 12% increase in its holiday shipping. Those gains will be driven largely by FedEx SmartPost, a residential shipping service which delivers retailers' shipments to the post office for final delivery to individual homes, as well as by expected volume increases in other divisions. UPS will report holiday shipping expectations next month.

Surprisingly, continuing negative news about Europe's economy hasn't slowed European shipping volumes, said Chief Financial Officer Kurt Kuehn. He cited "continued strong growth in European exports," with growth in the upper single digits. Most of the exports stay within Europe, he said, adding, "We are a little bit cautious on Europe with all the headline risk."

In Asia, however, expectations were high. "We built a network expecting a certain level of growth and it did not materialize," Kuehn said.

"There does seem to be a little uptick in sentiment right now that could create the need to speed up supply chains," he noted. "If there's a little bit of an inventory squeeze, and there is a decent probability of that, there is some upside."

UPS reported Tuesday that it earned $1.04 billion , or $1.06 a share, in the third quarter. Analysts surveyed by Thomson Reuters had estimated $1.05. The company said its operating margin in international package delivery fell to 13.4% from 15.7%, due to excess capacity as package volume declined. Looking ahead, UPS reiterated its 2011 guidance toward earnings of $4.15 to $4.40 a share.

Shortly after noon, UPS shares were down $1.22 to $69.67. FedEx shares were down 36 cents to $81.16.

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

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