By AP Business Writer
updated 7/25/2006 11:42:51 AM ET 2006-07-25T15:42:51

UPS Inc., the world’s largest shipping carrier, reported Tuesday a 7.6 percent increase in second-quarter profit on strong sales gains, but it missed Wall Street expectations as it was hurt by high fuel, rail, health care and pension costs.

The company also warned that its full-year earnings growth will be at the low end of its original forecast, and UPS shares fell more than 14 percent in morning trading.

The Atlanta-based company said it earned $1.06 billion, or 97 cents a share, for the three months ended June 30, compared with a profit of $986 million, or 88 cents a share, for the same period a year ago.

Analysts surveyed by Thomson Financial were expecting earnings of $1 a share.

Revenue in the quarter rose 15.2 percent to $11.74 billion, up from $10.19 billion a year earlier. Analysts expected UPS to post quarterly revenue of $11.6 billion.

In a conference call with investors, Chief Financial Officer Scott Davis said UPS reported solid earnings despite “unexpectedly higher fuel costs.”

Davis said fuel surcharges the company imposed lagged real costs by six weeks, and UPS had capped fuel surcharges in April and May but removed the cap in June.

He also said the company was affected by increased rail, health care and pension costs. Davis said a slowing economy had only a “slight impact” on UPS’ results.

“It is a factor,” Davis said of the economy. “We expect it to moderate.” But, he added, “We still expect small package growth to be growing faster than the economy.”

UPS said second-quarter daily ground volume increased 4.6 percent, while average daily volume for next-day air rose 4.2 percent. Total international package volume grew 16.5 percent, UPS said, even though there were three fewer operating days in Europe than in the same quarter last year.

For the first six months of the year, UPS, also known as United Parcel Service, earned $2.04 billion, or $1.86 a share, compared to a profit of $1.87 billion, or $1.66 a share, for the same period a year ago. Six-month revenue rose 15.8 percent to $23.26 billion from $20.08 billion a year earlier.

UPS said it now expects earnings per share to be in a range of 87 cents to 91 cents in the third quarter compared to 86 cents a share reported for the prior-year period. The third quarter will have fewer operating days than a year earlier, negatively impacting earnings per share comparison roughly 4 cents a share to 5 cents a share, UPS said.

The company also said that it expects full-year earnings growth to be at the low end of the company’s original estimate of 11 percent to 16 percent growth for 2006.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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