(Bloomberg) -- United Parcel Service Inc. warned it may have to take a charge of as much as $3.8 billion related to a potential pension-fund obligation.

The cost would be triggered if the U.S. Treasury Department approves benefit cuts to protect the solvency of the Central States Pension Fund, UPS executives said Thursday. UPS pulled out of the fund in 2007 but agreed to make up any losses its remaining members experienced.

Bloomberg/file photo

The world’s largest package-delivery company may have to record a charge of $3.2 billion to $3.8 billion if the government approves the benefit cuts, executives said in an earnings conference call. UPS plans to oppose such a move by the Treasury. Even with the charge, earnings this year probably still will fall within the company’s forecast of $5.70 to $5.90 a share, UPS said.

“The market is reacting to the size of the potential liability and concern about the unknown impact to future numbers,” said David Vernon, an analyst at Sanford C. Bernstein & Co. “I think it’s overdone. This is an issue that’s going to be resolved in the courts regardless of what Treasury decides.”

Profit climbs

UPS reported that earnings excluding items rose to $1.27 a share, beating the $1.22 average of analyst estimates compiled by Bloomberg. Revenue increased 3.2% to $14.4 billion, the Atlanta-based company said in a statement. Analysts had predicted $14.6 billion.

Executives attributed the higher earnings in part to a 15% increase in operating profit in its European unit. A 6% gain in business-to-consumer shipments helped propel U.S. domestic revenue up 3.1%.

UPS had fewer disruptions to its air and road network in the first quarter than in previous years that were plagued with costly storms. The company also has been partly insulated from a slowdown in U.S. freight volume because of a growing reliance on e-commerce, said Kevin Sterling, an analyst at BB&T Capital Markets.

UPS fared well during the peak holiday season in November and December, delivering its crush of packages ahead of Christmas. Chief rival FedEx Corp. was criticized for failing to beat the holiday deadline in some instances.

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