By RACHEL TOBIN RAMOS

The Atlanta Journal-Constitution

Thursday, October 23, 2008

UPS told Wall Street investors today it has reduced its U.S. staff by about 1 percent, or 3,000 employees, in the face of declining domestic shipments, and that more reductions could be on the way.

UPS, the world’s largest package carrier, also announced today that its revenue in the third quarter increased 7.4 percent in the third quarter, to $13.1 billion.

Nonetheless, UPS officials are concerned by predictions this could be the worst holiday season since 1991.

“With consumer confidence approaching new lows, we’re concerned that Santa’s sleigh may be a bit lighter than usual,” Kurt Kuehn, UPS’s chief financial officer, told Wall Street investors during a conference call after earnings were released this morning.

The company believes that an economic turnaround may take several more quarters and may not arrive until 2010. In response, UPS said it may consider further reductions in its U.S. staff. The company employs is about 300,000 people in the U.S., and another 100,000 worldwide.

“As everyone knows, the third quarter turned out to be one of the most challenging that the world financial markets have seen in a long time,” said CEO Scott Davis. “Forecasters expect that consumer spending will be worse in the current slowdown than the prior two downturns.”

Company officials did not provide numbers on any staff reductions in Georgia. And, they said, the company’s usual seasonal hiring will continue despite the reductions in permanent workforce. Kuehn said UPS will need tens of thousands of seasonal workers to deliver holidays packages.

For the third quarter, earnings per share were 96 cents, a 5.9 percent drop from $1.02 in the third quarter last year. Earnings per share did beat Wall Street expectations of 89 cents per share. Net income was $970 million, a 9.9 percent drop from third quarter last year.

Fuel was a huge expense for the large shipper. UPS’s fuel bill for the quarter was $1.2 billion, a 64.5 percent increase over the third quarter last year.

UPS said it did recover fuel costs through a fuel surcharge, even as oil prices fluctuated wildly throughout the third quarter. The fuel surcharge lags average jet and diesel prices by a month and half. It was the second quarter in a row that UPS’s fuel bill topped $1 billion.

The domestic economy has been a drag on Sandy Springs-based UPS as customers have traded expensive air shipments for cheaper and slower ground delivery. But, the company said its international operations and supply chain business have been steadily growing.

Domestic package volume decreased to 12.9 million packages a day, from 13.4 million packages a day, while international package volume increased 3.3 percent to 1.9 million packages a day.

The company said it still has a strong cash position. For the first nine months of the year, it had $4.6 billion in free cash flow. UPS repurchased 48.5 million shares at a cost of $3.3 billion, paid $1.8 billion in dividends, invested $2.1 billion in capital expenditures and ended the third quarter with $1.8 billion in cash and short-term investments.