UPS Profit Trails Estimates as Overseas Growth Slows

United Parcel Service Inc. (UPS), the world’s largest package-delivery company, fell the most in four months after first-quarter profit trailed analysts’ estimates amid slowing growth in overseas shipping.

Net income climbed to $1 a share, lagging behind the average estimate of $1.01 in a Bloomberg survey of 23 analysts. The shares slid 1.8 percent to $78.25 at the close in New York, the most since Dec. 8.

Gains in overseas shipments at UPS, an economic bellwether because it carries goods from mobile devices to pharmaceuticals, have slowed in recent quarters as demand weakened for Asian exports. Revenue per piece stagnated and the operating margin in Atlanta-based UPS’s international package division declined to 13.8 percent from 15.6 percent a year ago.

“Margins were below expectations on the international side, so that’s the negative,” said Benjamin Hartford, an analyst with Robert W. Baird & Co. in Milwaukee who called the results a “mixed bag.”

Europe’s debt crisis has crimped Asian exports, and the U.K.’s sinking into its first double-dip recession since the 1970s highlights the potential threat to global demand from developed nations cutting spending to improve their finances.

China’s economic growth slowed throughout last year to 8.9 percent in the fourth quarter, and economic confidence in the euro region declined more than economists had forecast in April.

International Market

“We know the international environment is weak -- that could strengthen,” Hartford said.

International average daily volume advanced 2.8 percent. Those shipments grew at 4 percent or more in the first three quarters of 2011 and the rate slowed to 2.6 percent in the fourth quarter. European and U.S. demand for Asian products began weakening in the middle of last year, prompting UPS to cut air capacity for those shipments, the company has said.

While deliveries along those lanes were “relatively flat,” UPS saw shipments between Asian countries advance during the first quarter, Chief Financial Officer Kurt Kuehn said in a telephone interview.

Asia’s trading with itself,” he said. “Even though the western economies aren’t creating a lot of demand growth, clearly the Asian economies are.”

UPS’s growth within Europe was strong as well, with shipments between countries in the area up more than 5 percent during the quarter, Kuehn said.

Domestic Margins

In the U.S. package unit, volume growth of 4.5 percent was “better than expected,” Hartford said.

“The positive is that we’re seeing domestic margins expand and trend above expectations, and volume growth in domestic, on balance, is better than expected,” driven by deliveries between businesses and consumers, he said.

U.S. retail sales rose more than three times as much as forecast in March, climbing 0.8 percent, and an April 27 government report may show gross domestic product increased at a 2.5 percent annual rate in the first quarter.

Net income climbed to $970 million from $915 million, or 91 cents a share, a year earlier. The company reiterated its 2012 full-year profit forecast of $4.75 to $5 a share.

UPS letter deliveries increased during the quarter for the first time in several years, driven by climbing mortgage refinancing, Kuehn said.

“Our next-day letter product had been frankly somewhat besieged,” over the past few years, Kuehn said. “The increase in mortgage refinancing at these incredibly low rates is starting to show up.”

To contact the reporter on this story: Natalie Doss in New York at ndoss@bloomberg.net.

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net.

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