UPS warns on third quarter as shipments decline
United Parcel Service warned on Thursday that its third-quarter earnings would miss Wall Street estimates as parcel shipments continue to decline in the wake of the US economic downturn.
The world’s largest delivery company also reported its second-quarter earnings dropped, the company’s second consecutive quarter of falling earnings.
UPS, which is much more US-focused than FedEx, its biggest rival, said it saw no signs of an economic rebound and has implemented cost-cutting measures, including a hiring freeze and the cancellation of several “non-essential” projects.
“We have no quick idea about what will happen in the next few quarters” in the US economy, said Scott Davis, chief financial officer. However, “the trends do seem to have stabilised at least domestically, where we have 80 per cent of our business.”
Mr Davis projected volume would continue to fall in the domestic ground delivery operations and saw a “softening” in the overseas business. Ground volume fell 1.3 per cent in the second quarter.
UPS earned 55 cents a share in the second quarter, down more than 8 per cent from the 60 cents earned in the same period a year ago. That was a cent ahead of Wall Street projections.
The Atlanta-based company also expects third-quarter earnings per share to come in between 52 and 55 cents, lower than the 57 cents analysts originally predicted.
Shares of UPS fell 15 cents to $57.88 in late morning trading.
The financial troubles encountered by US technology and manufacturing companies has hit UPS and FedEx particularly hard, because these groups form the bulk of their customer base. FedEx, for instance, reported a 55 per cent drop in profits in the latest quarter.
Many of these companies have not only scaled down their shipments but also switched to cheaper methods, such as deferred delivery rather than next-day. UPS said deferred air volume rose 2.6 per cent in the second quarter, while next-day air volume which was flat.
Both companies are searching for different ways to increase their business. UPS has recently expanded its freight forwarding business by acquiring Fritz and continues to purchase logistics companies in Europe and the US. It recently purchased Uni-Data of Germany, a logistics company, and Polysys Electronic Systems of Switzerland.
Logistics has been one of the fastest growing areas for UPS and a bright spot in the otherwise gloomy forecast. Revenues in the UPS Logistics Group rose 41 per cent to $308m in the second quarter.
FedEx, meanwhile, has also expanded its logistics operations and recently partnered with the US Postal Service to deliver express mail.
Revenues rose to $7.6bn in the second quarter from $7.3bn a year ago but would have been higher if not for the impact of the euro and other foreign currencies, UPS said.
Financial Times
