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Forgive my bluntness here, but if you were surprised by the quarterly results that UPS (NYSE: UPS ) reported yesterday, you have only yourself to blame. And the earnings numbers aren’t even what’s most important. Investors will be better served by considering the steps UPS is taking to reduce workforce costs.
It's been more than a month since FedEx (NYSE: FDX ) warned that “demand for our services weakened sequentially throughout the quarter and global economic trends continue to worsen,” and removed 18% of the peanuts packed into its annual guidance. That was plenty of time to absorb the news, and get ready for similarly bleak views from UPS.
UPS reported a $0.25-per-share profit for the fourth quarter of 2008 -- a reversal from last year's $2.52 loss. It also reported an $0.83-per-share "adjusted" profit -- a 22% decline from last year's number, which was similarly adjusted to back out one-time expenses.
Now, ordinarily, I'd spend the rest of this column discussing the validity of UPS' characterization of its earnings, debating “one-time” expenses, and UPS’ choice of non-GAAP metrics. But I won't. Because the real story here today is not how much UPS earned or didn't earn. Nor is it how well or poorly it's faring. There's no arguing with CEO Scott Davis' assertion that we're in the midst of a "severe decline in economic activity around the world."
What's important to investors, I believe, is the bigger picture -- the "tough decisions necessary to adapt our enterprise to today’s realities," as Davis put it.
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"Tough decisions." That has a nice ring to it. But don't expect UPS employees to cheer Davis' intestinal fortitude. In an effort to ride out the storm, UPS yesterday joined such business luminaries as Ford (NYSE: F ) , General Motors (NYSE: GM ) , and Sears Holdings (Nasdaq: SHLD ) in suspending 401(k) matching contributions for its employees.
Granted, on the plus side, UPS at least took the high road by ensuring that if its workers must shiver through a 401(k) freeze, management will get a veritable case of frostbite. Taking a page from Motorola's (NYSE: MOT ) book, UPS announced that it will not only suspend 401(k) matches for management, but freeze their salaries as well. So kudos to UPS for making an effort to spread the pain equally.
All totaled, consolidations, salary freezes, and benefit reductions will save the company more than $500 million per year. Big picture, though, I believe cutting employee retirement benefits won't quell the macroeconomic storm UPS is sailing through. All it will do is hurt the company's image among potential employees once the storm is past and UPS needs to expand again.