UPS delivers a downgrade after bad Christmas period
United Parcel Service, the package delivery giant, yesterday cut its forecast for fourth-quarter earnings, blaming lower-than-expected volume and stormy weather during the peak Christmas period.
The profit warning punctured the optimism that has surrounded the express delivery industry in recent months, which had benefited from a growing US economy and surging trade with Asia.
However, FedEx, the largest package delivery company after UPS, said it had experienced “a strong holiday season” and reaffirmed its existing profit guidance.
UPS portrayed its problems as a short-term blip and reaffirmed its “positive” outlook for this year.
UPS said fourth-quarter earnings-per-share were now expected to be 75-76 cents, down from an earlier guidance of 83-87 cents.
The Atlanta-based company said it had been surprised by an “unexpected, significant drop” in domestic volume between Christmas and New Year, the last week of the quarter.
Severe snowstorms in the US midwest in the days leading up to Christmas had also hit business by increasing costs and delaying packages during the company’s busiest week of the year.
Prior to Christmas, US domestic volume growth had been trending at 2.5 per cent. But the sluggish week before New Year reduced growth for the quarter to 1.6 per cent.
Domestic ground volume growth was 1.5 per cent, while next-day air delivery volume strengthened to 4.1 per cent.
UPS was investigating the reasons for the decline and why it had not been forecast. One theory was that businesses had closed down for part of the week because the Christmas Day holiday had fallen on a Saturday.
UPS said the international export business “continued its excellent performance, posting double-digit volume growth”. The company stood by its previous forecast of 13-17 per cent growth this year, on top of the nearly 19 per cent earnings increase forecast in 2004.
UPS revised its full-year 2004 earnings to a range of Dollars 2.89-Dollars 2.90 a share, implying 2005 earnings of Dollars 3.27 to Dollars 3.39 a share. Analysts polled by Thomson First Call before yesterday’s announcement expected, on average, 2005 profits of Dollars 3.43-a-share.
Memphis-based FedEx reaffirmed its forecast for earnings-per-share of 90 cents-Dollars 1 for its third quarter ending February 28.
Analysts said UPS’s problems reflected its greater dependence of ground deliveries, which were more prone to delays. FedEx, in contrast, moves most of its packages by air.
