Tuesday, 24 June 2008

UPS Drops a Bomb

Much is made of the transports as a harbinger of the health of the economy. Yesterday after the market close UPS slashed their earnings forecasts citing the high price of oil and a weak US economy, from marketwatch.com:

UPS slashes its profit outlook due to fuel, economy

United Parcel Service Inc. said late Monday that it was slashing its second-quarter profit outlook, squeezed by soaring fuel prices and a sluggish U.S. economy.

It marks the second straight quarter that the company has warned it would not meet prior profit expectations. Its stock fell 4% in late trading.

The package-delivery giant cut its second-quarter profit forecast to a range of 83 cents to 88 cents a share. In late April, UPS had expected to earn between 97 cents and $1.04 a share. Since then, crude prices have surged from $110 to $136 a barrel.

On average, Wall Street analysts are expecting UPS (UPS) to earn 99 cents a share in the second quarter, according to a FactSet Research. The shipper will issue earnings July 22.

UPS said slow U.S. economic growth has slowed package volume in the United States and curbed sales of its premium air-delivery services. Shipments into the United States also have been affected, hurting its international-business unit.

Last week, rival FedEx Corp. (FDX) also issued a profit forecast well below Wall Street expectations. See full story.

Stocks of both companies have performed in line with the broader market. UPS shares are down 6% so far this year, while FedEx is down 10%. By comparison, the S&P 500 Index is off 10%.

This shouldn't have come as much of a surprise given the warning from Fedex last week. This is another blow to the goldilocks view of a second half turnaround for the US economy.