UPS Stock Falls on Profit News

Shares of UPS Inc. plunged Tuesday after the world’s largest shipping carrier reported a second-quarter profit that missed Wall Street expectations and warned that its earnings growth for the year would be at the low end of its forecast.

Hurt by high fuel, rail, healthcare and pension costs, the company said it earned $1.06 billion, or 97 cents a share, for the three months ended June 30, a 7.6% increase from the 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% to $11.74 billion, up from $10.19 billion a year earlier. Analysts expected UPS to post quarterly revenue of $11.6 billion.

Shares of UPS, also known as United Parcel Service, fell $8.20, or 10.3%, to close at $71.80 in heavy trading on the New York Stock Exchange, toward the lower end of its 52-week range of $66.75 to $83.99. That’s the biggest one-day stock drop since UPS went public on Nov. 10, 1999.

“The market’s going to do what the market’s going to do,” Chief Financial Officer Scott Davis said in an interview.

Davis said the Atlanta-based company’s earnings were solid despite “unexpectedly higher fuel costs.”

“We feel pretty good about the outlook right now,” Davis said. “We’ll be fine long-term.”

In a conference call with investors, Davis said fuel surcharges the company had imposed lagged behind real costs by six weeks.

UPS spent $668 million on fuel in the second quarter, compared with $465 million spent in the same period a year ago, Davis said.

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

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

For the first six months of the year, UPS earned $2.04 billion, or $1.86 a share, compared with a profit of $1.87 billion, or $1.66 a share, for the same period a year ago.

Six-month revenue rose 15.8% to $23.26 billion from $20.08 billion a year earlier.