UPS cuts 1,800 jobs, raises outlook

UPS shares rose as much as 6.5 percent to their highest level since the depths of the financial crisis in October 2008.

The shipper expects fourth-quarter earnings of 73 cents to 75 cents per share, up from an earlier estimate of 58 cents to 65 cents and besting Wall Street's view of a profit of 63 cents per share, according to Thomson Reuters I/B/E/S.

The higher forecast reflects improved shipping volume amid an economic recovery, while the elimination of 0.5 percent of the company's U.S. workforce of 340,000 is the result of increased automation of management functions, analysts said.

Economists consider UPS and rival FedEx Corp bellwethers for the U.S. economy because they handle such a huge chunk of the nation's shipping. FedEx also raised its outlook before reporting fiscal second-quarter earnings in December.

Given the evidence of stronger volume, the UPS job cuts are not an indicator of economic weakness, Morningstar analyst Keith Schoonmaker said.

The U.S. economy shed 85,000 jobs in December, leaving the unemployment rate unchanged at 10 percent, the Labor Department reported on Friday.

UPS said the cuts will come as it reorganizes its domestic small package division, which handles boxes of 150 pounds or less. It is cutting the number of regions to three from five and the number of districts to 20 from 46.

They're not cutting sales jobs, they're cutting back office jobs, said analyst Helane Becker of Jesup & Lamont Securities. They take out back office, they take out cost.

The eliminated workers, about 2.8 percent of management, did such jobs as human resources, vehicle procurement and audit, spokesman Norman Black said.

A combination of technologies that gives managers more complete information sooner makes it possible for a smaller number of them to run larger territories, Black said.

I look at it as an efficiency gain, Schoonmaker said. UPS is reaping the benefit of its investment in technology.

The districts that remain in April after the reorganization is over will have more marketing and sales staff than before the organization, but Black could not say if the company was hiring to add such staff.

UPS said it expects a one-time charge in 2010 as a result of the restructuring, but this will be offset by savings in the small package business.

The company is due to report quarterly earnings on February 2. On the New York Stock Exchange, UPS rose 4.6 percent to $60.05, while FedEx edged up 1.3 percent to $84.03 early Friday afternoon.

(Reporting by Helen Chernikoff; Editing by Derek Caney, John Wallace and Richard Chang)