Fierce US rivalry undermines UPS profits

Analysts yesterday blamed fierce competition from FedEx and DHL for the surprise profit warning issued by United Parcel Services on Tuesday, sending shares in the world’s largest package delivery company down nearly 8 per cent in afternoon trading.

UPS has been losing domestic market share to FedEx for the past few years and now faces fresh competition from DHL, a unit of Deutsche Post, which is expanding aggressively in the US.

The company is also struggling to keep pace with its rivals in the international market, particularly in fast-growing Asia where it trails both FedEx and DHL.

“UPS has some real issues to tackle,” said Matthew Brooklier, analyst at Bear Stearns. “The world is changing quicker than they seem to be adapting. Volumes are growing faster than expected overseas and slower than expected domestically.”

In its warning on Tuesday, UPS lowered guidance for fourth-quarter profits to a range of 75-76 cents a share, down from the previous forecast of 83-87 cents.

The company blamed the bad weather during the peak Christmas shipping season and a sharper than expected drop in business following the holiday. But Donald Broughton, analyst at AG Edwards, said the problems appeared to be more fundamental. “All is not well at UPS,” he said. “To have underperformed so badly in the quarter suggests this could signal a negative trend.”

Analysts said the problems appeared to be unique to UPS rather than the start of an industry-wide slowdown.

FedEx said on Tuesday it had experienced “a strong holiday season” and reaffirmed its existing financial guidance.

Ken Hoexter, analyst at Merrill Lynch, said the slowdown in UPS’s domestic ground volume growth to 1.5 per cent in the fourth quarter, below his target of 4 per cent, was “a cause for concern”.

“It appears ground initiatives by FedEx and DHL may be taking ground market share,” he said.

UPS is more dependent on ground shipments than FedEx, which sends most of its packages by air. However, FedEx has been growing strongly on the ground since it entered the market seriously in 2000. FedEx earns more than 22 per cent of its revenues from international deliveries, compared with 17 per cent at UPS.

Shares in UPS were down 7.78 per cent at Dollars 76.82 in early afternoon trading.