Earnings Preview: UPS
UPS reports third-quarter earnings on Thursday. The following is a summary of key developments and analyst opinion related to the period.
Hit by the economic downturn, the Atlanta-based company was expected to post a lower profit for the July-September period, compared to the same timeframe a year ago.
UPS’ shipping business within the U.S. in particular has been affected. When it released its second-quarter earnings in July, UPS lowered its outlook for the full-year. The current fourth quarter includes the traditionally busy holiday shipping period.
The company remains confident in its plans for future growth. UPS, also known as United Parcel Service, has said it has been working to cut costs.
UPS also is working out a contract to carry some air packages for DHL, the struggling U.S.-based express shipping unit of German postal service Deutsche Post AG. UPS, when it announced the proposed collaboration on May 28, predicted that the deal, when completed, will add up to USD 1 billion in annual revenue for the company.
Executives have said UPS also is interested in expanding its international package business. Asia and Europe are of particular interest to the company, executives have said. Besides the potential UPS-DHL deal, UPS has not announced any further deals in recent months.
BY THE NUMBERS: Analysts surveyed by Thomson Reuters, on average, expected UPS to post third-quarter profit of 89 cents a share. Analysts projected revenue for the quarter of $13 billion. Analysts generally exclude one-time items from their estimates. For the third quarter of last year, UPS reported net profit of $1.02 a share on revenue of $12.21 billion.
ANALYST TAKE: Standard & Poor’s analyst Jim Corridore in a recent research note reiterated his hold recommendation on shares of UPS. He said the company’s margins have been hurt by higher fuel costs and a customer shift to services that are less profitable for the company. Some customers have been using ground shipping, instead of air express, because it is cheaper for them. Given the current economic climate, he said S&P was cutting its 2009 earnings per share estimate. He added, “We see UPS as a good long-term holding, based on a diversified geographic revenue mix, a strong brand, and strong cash generation. But with weak global economy, we would not add to positions.”
WHAT’S AHEAD: UPS hopes to complete its vendor agreement with DHL by the end of the year. The potential deal has drawn criticism from officials in Ohio, where thousands of jobs could be lost if DHL proceeds with its plan to shift business away from its current two air vendors to UPS. Officials at UPS have defended the deal, insisting that it is not a merger and it would not lessen competition.
STOCK PERFORMANCE: UPS shares have fallen more than 25 percent, on a split-adjusted basis, since the beginning of the year. The stock closed at $50.70 on Tuesday. It has ranged from $43.32 to $76.47 over the last 52 weeks.
