October 21, 2010 / 3:26 PM / in 7 years

UPDATE 3-UPS beats estimates; sees slow economic recovery

* Q3 EPS $0.93 vs estimate $0.88

* Q3 revenue $12.19 bln vs. Wall St estimate $12.4 bln

* Raises FY outlook to $3.48-$3.54; prior view $3.35-$3.45

* Shares up 0.4 percent (Rewrites, adds CFO quotes, FedEx background, byline)

By Lynn Adler

NEW YORK, Oct 21 (Reuters) - United Parcel Service Inc UPS.N, the world’s largest package delivery company, beat quarterly profit forecasts and raised its full-year outlook while expecting modest holiday season growth in a slowly recovering U.S. economy.

“We are slightly more cautious about Q4 than we were perhaps three or four months ago, but we do still see a positive holiday season and we do expect consumers to show up for Christmas,” UPS Chief Financial Officer Kurt Kuehn said.

The economy is in a slow recovery, not headed for a double-dip recession, he said in an interview.

New claims for U.S. unemployment benefits fell more than expected last week, but not enough to suggest much improvement in the distressed labor market. Read more at: [ID:nN21275986]. The Federal Reserve is widely seen starting a new wave of asset purchases aimed at keeping interest rates low to stimulate demand while unemployment remains near 10 percent.

UPS said its third-quarter net income rose to $991 million, or 99 cents per share, from $549 million, or 55 cents a share, a year earlier.

Excluding special items, profit was 93 cents per share, beating analysts’ forecasts for 88 cents, according to Thomson Reuters I/B/E/S.

The Atlanta company’s shares were up 0.4 percent at $69.94.

Its international and supply chain business segments are showing the best profits ever for the first nine months of the year, Kuehn said.

“We are assuming that the economy will be on a slow recovery path but we have set our strategies and investments to match that,” he said. “We feel pretty confident that given the momentum, unless the economy weakens dramatically, that we’ll be in great shape going forward.”

Revenue rose 9.3 percent to $12.19 billion, short of the analysts’ estimate of $12.4 billion.

BB&T Capital Markets analyst Kevin Sterling attributed the earnings beat to growth in the company’s international air freight and cost controls.

UPS said it expected full-year earnings per share to rise more than 50 percent to a range of $3.48 to $3.54, excluding special items. It had previously forecast $3.35 to $3.45, and Wall Street had expected $3.45.

“Every day they move about 7 percent of U.S. GDP, so if they say they expect modest holiday season growth, they probably know better than anyone else,” Sterling said.

UPS and FedEx Corp FDX.N are considered indicators of U.S. economic activity as their business expands or shrinks with the broader economy.

FedEx, due to report its quarterly results next month, last month raised its profit forecast for its 2011 fiscal year, which runs through May, and warned that it saw slowing growth in the coming months.

UPS said it generated $3.5 billion in free cash flow during the first nine months of this year, paid dividends of $1.36 billion and repurchased 9.3 million shares at a cost of $589 million.

“There’s not a huge hole” that the company needs to fill with acquisition, Kuehn said.

However, UPS continues targeted acquisitions most likely focused on developing economies such as in Asia or Central or Eastern Europe and in market segments such as healthcare, he said.

At Wednesday’s close, UPS shares were up 19.8 percent year to date, while smaller rival FedEx had gained 4.4 percent.

Reporting by Lynn Adler; Editing by Dave Zimmerman

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