Thursday, 13 March 2008

UPS Cautions on 1Q08 earnings

UPS stopped short of downgrading their earnings forecast for 1Q08 but are indicating a softening in economic conditions. From Reuters:

UPS says Feb volumes down, could hurt earnings

Citing worsening economic conditions package delivery company United Parcel Service Inc (NYSE:UPS - News) said on Wednesday its U.S. volumes were down in February, which could make it hard to meet its first-quarter earnings outlook.

"If these trends continue through March, our earnings guidance for the first quarter will be difficult to achieve," Chief Financial Officer Kurt Kuehn said in a statement.

UPS has forecast first-quarter earnings per share in a range from 94 cents to 98 cents. Analysts, on average, have predicted EPS for the quarter of 96 cents, according to Reuters Estimates.

Atlanta-based UPS said that while U.S. volumes declined virtually across its "entire customer base" in February, its international volumes, including U.S. export volumes, continued to show strong growth. Kuehn also said that the company's international and supply chain units looked likely to meet first-quarter targets.

Like its main rival FedEx Corp (NYSE:FDX - News), UPS is considered a bellwether of U.S. economic activity, based on the premise that in a robust economy companies and individuals tend to send more packages and that the opposite is true in a downturn.

Despite the present economic challenges, UPS reiterated its full-year forecast of earnings per share within a range from $4.30 to $4.50. Analysts have predicted full-year EPS for the world's largest package delivery company of $4.40.

UPS also reiterated its goals of 6 percent to 8 percent annual revenue growth to 2010, compound annual EPS growth in a range from 9 percent to 14 percent and return on invested capital in a range from 23 percent to 25 percent.

In trade on the New York Stock Exchange, UPS shares were down 40 cents, or 0.6 percent, to $72.39.

It should be noted that despite some strong evidence that the US economy has entered a recession, 50% of Wall Street economists expect the US economy to avoid one. That's an improvement, usually a much greater percentage of economists get it wrong.