Tags: UPS | FedEx | slow | economy

UPS Trims 2013 Forecast on Slowing Economy, Shipping Shift

Friday, 12 Jul 2013 01:45 PM

 

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United Parcel Service Inc., the world’s biggest package delivery company, cut its 2013 earnings forecast, saying a slowing U.S. economy hurt second-quarter profit and revenue. The stock dropped the most since 2010.

Adjusted earnings fell to $1.13 a share in the second quarter, marking the first drop in more than three years and missing analysts’ estimate of $1.20, according to data compiled by Bloomberg. Profit for the year will increase as little as 3 percent, Atlanta-based UPS said in a statement today.

UPS and FedEx Corp., often viewed as economic bellwethers because they transport goods across the world, are working to counter a shift by their customers to less expensive shipping options as domestic growth is projected to slow from 2012. UPS Chief Financial Officer Kurt Kuehn said in the statement he expects market trends to persist.

“The severity of it was more than we were anticipating,” said James Corridore, an analyst at S&P Capital IQ in New York, who rates UPS a buy. “What will be interesting to see is how UPS intends to attack these issues.”

UPS fell 6.1 percent to $85.90 at 1:06 p.m. in New York, after declining as much as 6.2 percent for the biggest intraday drop since May 2010. Through yesterday, the stock had gained 24 percent, while FedEx increased 14 percent. FedEx declined 2.4 percent today to $101.92.

UPS forecast that adjusted earnings will rise to $4.65 to $4.85 a share in 2013, down from its earlier prediction of $4.80 to $5.06.

U.S. economic growth is projected to be 1.8 percent this year, down from 2.2 percent in 2012, according to the median of 96 estimates compiled by Bloomberg.

FedEx Growth

UPS’s projected profit growth trails predictions by FedEx, which is reducing expenses to counteract the waning demand for more costly priority shipping. FedEx, based in Memphis, Tennessee, said last month it sees fiscal full-year earnings rising as much as 13 percent, less than analysts estimated.

FedEx last October began a $1.7 billion restructuring to adjust to the shipping shift in international markets. It is parking older planes sooner than expected, trimming capacity to Asia and providing buyouts to 3,600 workers. The capacity reduction will push lower-yielding goods to cheaper shipping networks like ocean and ground, FedEx said.

Kuehn, the UPS finance chief, said today in the statement that the company “is adapting to meet” conditions that led to its second-quarter results. Andy McGowan, a UPS spokesman, declined to provide specifics.

‘Slow Growth’

“UPS started to adapt by reducing capacity in Asia, but given the slow growth in the U.S., many UPS customers have been focused on cost cutting,” Helane Becker, a Cowen & Co. analyst who rates its shares market perform, said in a note to investors. “We do not expect to see a significant uptick in next-day priority services until we see a global recovery and not just a U.S. recovery.”

UPS also said today that package volume growth slowed by an unspecified amount in the quarter as a result of negotiations to complete a new national contract with the Teamsters union, which represents 235,000 workers at the company. Some customers typically shift part of their business to competitors ahead of a labor contract expiration in case there is a work disruption.

While a new national master contract was approved last month, some regional supplements were rejected. All the Teamster entities must approve the agreement before it can take effect.

The company and union have agreed to extend the existing contract while talks continue. While the extension doesn’t have a specific end date, it can be terminated by either side with a 30-day notice, the Teamsters said on June 28.

© Copyright 2014 Bloomberg News. All rights reserved.

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