UPS Cuts 2012 Forecast as Slowing Economy Press Profit

United Parcel Service Inc. (UPS), the world’s largest package-delivery company, cut its full-year forecast after a drop in international package sales dragged quarterly profit below analysts’ estimates.

Earnings for 2012 may be $4.50 to $4.70 a share, down from a previous projection of $4.75 to $5, the Atlanta-based company said. Second-quarter profit of $1.15 a share trailed the $1.17 average estimate from analysts as sales in the International Package and Supply Chain & Freight businesses fell.

UPS, an economic bellwether because it moves goods ranging from financial documents to pharmaceuticals, projects the U.S. economy will expand 1 percent in the rest of the year. Premium- product growth will slow as customers choose cheaper shipping options, Chief Financial Officer Kurt Kuehn said on a call with analysts and investors.

“International volume is particularly weak,” Kevin Sterling, an analyst at BB&T Capital Markets in Richmond, Virginia, said in a telephone interview. “They are not immune from China softening and everything happening in Europe.”

International Package sales dropped 4 percent to $3.01 billion as average daily volume was little changed and currency fluctuations damped revenue, the company said. Supply Chain & Freight sales fell 1.6 percent as excess capacity for Asian exports pressured pricing.

FedEx Pressures

FedEx Corp. (FDX), the operator of the biggest cargo airline, has encountered similar pressures. Last month, the Memphis, Tennessee-based company cited Europe’s debt crisis and a slowdown in Asia when it gave a smaller profit forecast than analysts estimated for the fiscal year ending in May.

UPS dropped 3.9 percent to $74.91 at 10:59 a.m. in New York, following a 4.5 percent decrease that was the largest intraday since September. The shares previously gained 6.5 percent this year.

Net income climbed 2.2 percent to $1.12 billion, from $1.09 billion, or $1.09 a share, a year earlier, as U.S. domestic package revenue increased. Volume gains there were driven by lightweight shipments from online retailers to their customers, UPS said.

Companywide revenue climbed 1.2 percent to $13.3 billion, UPS said. Growth was slower than last quarter’s 4.4 percent expansion partly because of customers opting for cheaper shipment options.

“The deferred products are still leading the pack,” Logan Purk, an analyst at Edward Jones & Co. in St. Louis, said in a telephone interview. “Clients are still choosing the slower methods of delivery and that is impacting results in terms of yield.”

UPS, which is seeking to expand in Europe with the $6.5 billion acquisition of TNT Express NV (TNTE), said it expects to complete the purchase in the fourth quarter. The deal is the biggest in the company’s 105-year history.

“Europe continues to be a good story for us,” Chief Executive Officer Scott Davis said on the call. “Intra-regional shipments are continuing to show growth.”

To contact the reporter on this story: Heather Perlberg in New York at hperlberg@bloomberg.net

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

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