10/23/2012 09:10 EDT | Updated 12/23/2012 05:12 EST

UPS says consumers driving shipping growth as manufacturing remains weak

NEW YORK, N.Y. - UPS says online shoppers are propping up its business in a tough global economy.

The world's largest package delivery company believes that consumer demand for gadgets will drive its shipments and earnings this year, making up for slower trade between businesses.

The company also narrowed its earnings forecast for the year, and now expects growth of 5 to 7 per cent from 2011. The stock rose almost 3 per cent Tuesday afternoon.

UPS said it predicts earnings of $4.55 to $4.65 per share, compared with its earlier forecast of $4.50 to $4.70. The new outlook indicates that earnings in the fourth quarter will exceed Wall Street expectations.

"Global trade continues to be less strong than any of us would like at this point in time," CEO Scott Davis said in a conference call with analysts. "UPS has made the necessary adjustment. In the fourth quarter we expect to hit on all cylinders."

For investors, the outlook offset weaker results in the most recent quarter — and lingering uncertainty about the economy.

For the three months ending in September, United Parcel Service Inc.'s net income fell 56 per cent to $469 million, or 48 cents per share. The results were brought down by a big charge to restructure pensions. Without the charge, UPS would have earned $1.06 per share, matching Wall Street expectations.

Revenue fell less than 1 per cent to $13.07 billion. Analysts polled by FactSet, on average, expected $13.32 billion.

Revenue and daily package volume improved at UPS' core U.S. package segment. But operating profit fell because higher prices weren't enough to offset increased fuel costs and lower average package weights.

Meanwhile, the international segment produced its highest-ever operating profit for the summer quarter. Growth was driven by shipments of new technology products out of Asia. Apple Inc.'s iPhone 5 was introduced last month.

Because it handles so many consumer and business shipments worldwide, UPS results sometimes foreshadow broader economic trends.

UPS said 40 per cent of total shipments are from businesses to consumers, compared with about a third from a few years ago. It expects these shipments, typically from large catalogue or internet retailers, to grow to half of all packages during the holiday season.

UPS said there is some uncertainty about how strong the holiday shopping season will be, but it's growing more certain of its ability to increase earnings in a still-weak global economy.

UPS expects consumers will continue to drive its results as online shopping increases. UPS and its smaller rival FedEx Corp. can benefit twice when consumers shop online: They ship the gift to the receiver, and they also ship the unwanted presents that are later returned.

Online sales are expected to grow at four times the pace of traditional retail sales this year.

This trend is helping UPS' earnings despite weakness in trade between businesses. Business-to-business shipments are typically between a manufacturer and a retailer, and are closely tied to industrial production. Manufacturing output in the third quarter fell for the first time since the spring of 2009.

Consumers spending, meanwhile, picked up. Retail sales gains in August and September were the strongest in two years.

UPS shares rose $2.17, or 3 per cent, to close at $73.73 Tuesday after climbing as high as $74.14 earlier in the session.