UPS United Parcel Service

By Laura Stevens 

United Parcel Service Inc. reported 10% growth in quarterly income, helped by efforts to boost efficiency and lessen its costs delivering online orders to U.S. homes.

Residential deliveries, up more than 6% in the quarter, are inherently more costly than shipments to businesses because the packages tend to require more driving and time. UPS has invested in software to improve delivery routes, added package pickup locations to pool deliveries, and is doing more so-called last-mile deliveries instead of paying the U.S. Postal Service for that service.

"We're creating that density that allows for the improvement in the economics," Chief Financial Officer Richard Peretz said in an interview. "You're really starting to see that benefit in the last few quarters."

The company said it expects its momentum to continue, and it backed its full-year guidance. But it also said a decision by the U.S. Treasury Department regarding pension cuts may trigger a charge of up to $3.8 billion this year that would push earnings to the lower end of its forecast range.

Shares were down less than 1% to $106.35 in recent trading on the New York Stock Exchange.

For its quarter ended March 31, the Atlanta-based company's revenue rose 3.2% to $14.42 billion. UPS earned $1.13 billion for the period, up from $1.03 billion the same quarter a year earlier.

The company increased U.S. domestic package operating profit by 7.6% to $1.1 billion and expanded its operating margins as the company reduced its average cost per package by 1.9% through efficiency gains and lower fuel costs. Average daily U.S. package volume increased by nearly 3%.

For the first time, executives outlined potential costs related to the pension fund of some of its current and former employees. The Central States Pension Fund, as it is called, has asked the Treasury Department for approval to cut benefits, and a decision is expected by May 7. If the cuts are approved, the company said it may need to pay between $3.2 billion and $3.8 billion to cover about 48,000 current and former Teamster employees in the fund.

UPS executives said the company would fight such an outcome, because it believes the fund's plan as submitted is illegal. Congress in 2014 passed a new law to allow pension plans to avoid insolvency through measures including suspending or reducing benefits. Under that law, UPS said its group of affected employees is supposed to be the last to receive cuts, but are instead disproportionately targeted.

The company paid $6.1 billion to exit the Central States plan in 2007, establishing a new single-employer plan for employees and eliminating its contribution requirements to the multiemployer plan. UPS committed at the time to make up the difference for employees moved from the old plan into the new plan if the Central States plan's benefits were reduced.

--Anne Steele contributed to this article.

Write to Laura Stevens at laura.stevens@wsj.com

(END) Dow Jones Newswires

April 29, 2016 02:48 ET (06:48 GMT)

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