UPS, Union Pacific Sound Cautious Note on Economy

Thursday, 21 Oct 2010 02:38 PM

 

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United Parcel Service Inc., the world's largest package delivery company, has become more cautious heading into one of its busiest periods — the U.S. holiday shopping season.

The head of No. 1 U.S. railroad Union Pacific Corp. also sounded a cautious tone on the economy's recovery from its worst downturn since the Great Depression, overshadowing better-than-expected profit reports from both companies and from trucking and logistics firm Ryder System Inc.

All three transportation companies' shares were lower in afternoon trading.

November and December are a peak period for UPS and its main rival, FedEx Corp. as they carry large volumes of packages ordered by consumers, as well as shipments for retailers who sometimes need to quickly restock shelves.

"We are slightly more cautious about Q4 than we were perhaps three or four months ago, but we do still see a positive holiday season and we do expect consumers to show up for Christmas," Chief Financial Officer Kurt Kuehn said in an interview.

It is also a critical time for major retailers, from Wal-Mart Stores Inc. to Amazon.com Inc.

BB&T Capital Markets analyst Kevin Sterling said every day UPS moves "about 7 percent of U.S. GDP. If they say they expect modest holiday season growth, they probably know better than anyone else."

Despite the cautious tone, UPS raised its full-year profit forecast. It now looks for full-year profit of $3.48 per share to $3.54 per share, up from a prior forecast of $3.35 to $3.45. Its shares fell 1.3 percent to $68.75 on the New York Stock Exchange.

FedEx last month raised its profit forecast for its 2011 fiscal year, which runs through May, and also warned that it saw slowing growth in the coming months.

SLOW TRAIN

Union Pacific — which hauls a wider variety of goods than UPS, including cars and agricultural commodities — also said it expects volumes to improve, though its chief executive said the economy's heading is unclear.

"It is so tough to see where the economy is going," CEO Jim Young said in an interview. "The consumer is back to some degree. Everybody is cautious ... But clearly they are back a little bit."

The Omaha, Nebraska-based railroad, whose peer Burlington Northern Santa Fe was taken private by Warren Buffett's Berkshire Hathaway Inc., reported a 51 percent rise in earnings, topping analysts' expectations.

Executives said shipments of fertilizer, petroleum and coal were rising, while traffic in construction materials was declining.

"Railroads are continuing to benefit from the recovery, albeit at a slow pace," said Dahlman Rose analyst Jason Seidl.

Union Pacific shares slid 1.7 percent to $84.32 on the New York Stock Exchange. Even with that decline, they have risen 32 percent so far this year, twice the 16 percent rise of the Dow Jones transportation average.

RESUMING HIRING, BENEFITS

Both UPS and Union Pacific, which had shed workers and taken other cost-cutting steps during the worst recession since the Great Depression of the 1930s, said they were beginning to reverse some of those steps.

UPS officials told investors on a conference call that they expect to resume matching employees' contributions to their 401(k) retirement savings plans next year. Suspending those contributions was one of the cost-saving steps UPS took during the recent brutal economic downturn.

Union Pacific executives said they had begun to bring back furloughed employees and to hire some new workers, in line with rising demand.

Trucking and logistics company Ryder also posted better-than-expected profit and raised its forecast for the year.

The Miami-based company now looks for full-year profit of $2.15 per share to $2.20 per share, up from a prior forecast of $2 to $2.10 per share. It said higher commercial truck rentals and stronger demand for used vehicles had boosted results.

Ryder shares were down 4.1 percent at $44.25 on the NYSE.

© 2014 Thomson/Reuters. All rights reserved.

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