United Parcel Service Inc. raised its earnings guidance Friday but said it will cut 1,800 jobs and that it still expects a gradual economic recovery.

The package shipper cited cost savings and a better-than-expected domestic and international performance for the increase in fourth-quarter expectations.

UPS is viewed as a key barometer for global trade activity, and the new guidance follows a late surge in shipping as retailers and manufacturers restocked ahead of the 2009 holiday season. Manufacturing orders also have been trending higher in recent weeks, and other transport indicators such as rail carloads have seen year-on-year improvements.

UPS said it would cut 1,800 staff in the U.S., with a one-time charge offset by savings in its domestic small-package unit. The Atlanta-based company said the cuts were part of a long-planned management restructuring, rather than a reaction to the slow economy. It trimmed about 13,000 U.S. jobs last year, mostly through attrition, in response to the recession and a steep downturn in package volume.

"We're talking about adopting a leaner management structure for the domestic business," UPS spokesman Norman Black said. The latest cuts have "nothing to do with the economic recession." The company said fourth-quarter results came in better than expected both domestically and internationally, even as it cautioned that it anticipates "a gradual economic recovery." UPS raised its fourth-quarter earnings guidance to a range of 73 cents to 75 cents a share, up from its October view of 58 cents to 65 cents a share.

Rival FedEx Corp. noted last month that it was having a particularly strong December and said its anticipated busiest shipping day of the year came in well ahead of forecasts. However, FedEx also issued a tepid earnings forecast for its fiscal third quarter, saying it expects a profit of 50 cents to 70 cents a share, well below the 84-cent average analyst estimate at the time.

UPS declined to comment Friday on its own holiday shipping season.

UPS's U.S. restructuring will reduce the number of districts in its small-package operation to 20 from 46, and the number of regions to three from five. "It's a big change in the management structure, but it has no effect on the operation," said Mr. Black, who added that improved technology and training essentially is allowing UPS managers to oversee larger geographic regions.
The move will eliminate management and administrative positions across the country, although UPS said about 1,100 of the employees will be offered voluntary severance packages and some other jobs will be cut through attrition.

The company has some 425,000 employees world-wide, about 340,000 of whom are in the U.S. In afternoon trading Friday on the New York Stock Exchange, UPS shares were up $2.79, or 5%, to $60.20. The company is the latest to provide higher guidance ahead of the earnings' season, which starts next week.
Corporate profits are viewed as a key driver for recovery this year. Most economists and Federal Reserve policy makers agree that the economy is recovering from the worst slowdown since the Great Depression, though they also expect a gradual improvement.

While most recent data have been positive, the Labor Department reported the U.S. lost 85,000 jobs in December, far more than the 10,000-job decline predicted by analysts. The December jobless rate stood at 10%, unchanged from November. Fed members have expressed concern about persistently high unemployment and its negative impact on consumer spending.
By Bob Sechler, for the Wall Street Journal. You can contact him at bob.sechler@dowjones.com