updated 10/20/2005 2:59:20 PM ET 2005-10-20T18:59:20

UPS Inc., the world's largest shipping carrier, reported a 7 percent rise in third-quarter profit Thursday and affirmed its guidance for 2005, though it expects only an "OK" Christmas because it believes high energy prices will hit customers' wallets.

The results met Wall Street expectations, prompting UPS shares to rise.

The Atlanta-based company said it earned $953 million, or 86 cents a share, for the three months ending Sept. 30, compared to a profit of $890 million, or 78 cents a share, for the same period a year ago.

Analysts surveyed by Thomson Financial were expecting earnings of 86 cents a share in the third quarter.

Revenue in the July-September period increased 17.9 percent to $10.55 billion, compared to $8.95 billion a year ago.

In a conference call with analysts, the company's chief financial officer, Scott Davis, said the company has been successful in passing along higher fuel prices to its customers in the form of fuel surcharges, though that could have its limits.

"None of us knows where that elasticity kicks in on fuel surcharges," Davis said.

He said UPS doesn't expect a "robust" Christmas, but an "OK" Christmas because of the impact higher energy prices will have on customers' spending.

Even so, UPS said that for all of 2005, it should meet its expectation of an 18 percent to 20 percent increase in earnings per share compared to the adjusted $2.90 a share reported in 2004.

For 2006, UPS said it expects an increase in earnings per share of 11 percent to 16 percent.

For the first nine months of the year, UPS said it earned $2.82 billion, or $2.52 a share, compared to a profit of $2.47 billion, or $2.17 a share, for the same period a year ago. Nine-month revenue rose 14.5 percent to $30.63 billion, compared to the $26.74 billion recorded a year ago.

U.S. domestic package revenue grew 6.9 percent in the third quarter, while international package revenue increased 14.5 percent. The company said it saw a 4 percent increase in average daily volume, led by gains in next-day air shipments. Average daily ground package volume rose 3.6 percent. Abroad, total average daily package volume rose 11.2 percent to 1.5 million a day, led by gains in Europe and Asia.

Meanwhile, UPS' protracted battle with its pilots to agree on a new contract continues. Davis said the two sides are having informal discussions and he is hopeful they can craft a deal soon. "It's been a long session, and we're still in it," he said.

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