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UPS says slowing business, fuel costs hit profit

/ Source: The Associated Press

UPS shares fell sharply Wednesday, a day after the world's largest shipping company cut its first-quarter earnings forecast because of higher fuel costs, a weakening U.S. economy and reduced domestic package volume.

UPS had warned at a New York investor conference last month that it might miss its earnings guidance for the quarter if the contraction that it saw in February continued.

After the market closed Tuesday, the Atlanta-based company lowered its first-quarter earnings expectations to 86 or 87 cents per share, compared with a previously anticipated range of 94 to 98 cents a share.

Analysts polled by Thomson Financial, on average, were expecting earnings of 93 cents per share.

UPS did not update its full-year guidance. Previously, it said it expects earnings per share to be between $4.30 and $4.50 for the year.

"The U.S. economy has continued to weaken, causing a reduction in domestic package volume and a shift away from premium products," UPS said. "Significantly increased fuel costs in the quarter also contributed to the lower-than-expected results."

UPS has said the first three weeks of January saw strong volume growth, but that was later followed by six weeks of contraction. It suggested Tuesday that the negative trends continued into March.

UPS, also known as United Parcel Service Inc., plans to release its first-quarter results April 23. It will discuss its outlook for the year then.

At the investor conference, Chief Executive Scott Davis said the company still considers its domestic market to be important to its future. But he said that the company can't rely on U.S. package volume growth alone. International growth will become more important in the future, he said.

UPS is eyeing China, India and Europe for growth opportunities.

Last month, UPS rival FedEx Corp. reported a 6 percent drop in third-quarter earnings and said a slow economy and high fuel prices are expected to continue cutting into profits. The Memphis, Tenn.-based shipper predicted fourth-quarter earnings would be lower than a year ago and its earnings growth would be limited in the next fiscal year.