UPS earnings down on US slowdown and attacks
Earnings at United Parcel Service dropped 19 per cent in the third quarter, hurt by the slowing US economy and the shutdown of its air operations during the week of the September11 terrorist attacks.
Business is still far from normal for the world’s largest delivery company as corporate customers, particularly in the US, continue to scale back their shipping needs. US package volume is still down 3 to 3.5 per cent this past week after falling about 10 per cent immediately after the September 11 tragedy. UPS has received a $37m credit from the US government to help compensate for the September losses, which the company estimates at about $130m.
“The events of that day significantly altered our business performance,” said Scott Davis, chief financial officer of UPS. “Prior to September 11, UPS was showing growth in its domestic air business and was on track to deliver on the financial guidance we had provided.”
Net income was $568m, or 50 cents per share, in the third quarter compared to $702m, or 60 cents per share, in the period a year ago. It was the third straight earnings drop in a row. The results exceeded Wall Street estimates by three cents.
Mr Davis warned earnings in the fourth quarter could be at the lower end of estimates – between 45 to 55 cents a share – if the US economy deteriorates much quicker than anticipated.
UPS shares fell 77 cents to $50 in early Thursday afternoon trading.
UPS said capital expenditures next year will be adjusted to below $2bn and that the fast-growing logistics business – usually the highlight of past earnings reports for UPS – will not be profitable this year as was previously expected. UPS has already implemented a hiring freeze, scaled back “non-essential projects,” and deferred the delivery of several aircraft.
Even before the events of September 11, UPS and its biggest competitor, FedEx, were having great difficulties in the US market. Its biggest customers – automotive and technology companies – have been hit worst by the economic slump in the US. Package volume in the US fell 3.4 per cent while international package volume gained only 2.6 per cent in the third quarter, much lower than the usual double-digit growth overseas.
Moreover, UPS has had to implement tighter security measures as a result of the terrorist attacks. Mr Davis said the “costs are not too material going forward” but that the company was monitoring them on a daily basis. He also noted that UPS may actually help handle extra volume for the US Postal Service as the agency struggles with an anthrax scare perpetrated by mail running through its network.
UPS and FedEx are entering a crucial period in the next few months as the holiday season begins. Mr Davis said it’s likely the company won’t be hiring as many part-time workers given the current economic climate. “Based on the state of the economy, the need for employees won’t be quite as high as before,” he said. “But there certainly will be more people available to fill those positions.”
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