UPS and Downs (Mainly Downs)

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.

So what?
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.

What can't Brown do for you
"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.

Fool contributor Rich Smith does not own shares of any company named above. United Parcel Service is a Motley Fool Income Investor selection. Sears Holdings is a Motley Fool Inside Value recommendation. FedEx is a Motley Fool Stock Advisor pick. The Motley Fool has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (22)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 05, 2009, at 6:15 PM, Chasp123 wrote:

    UPS is one of the few companies that provides a defined retirement plan AND a 401(k). In Tuesday's announcement, they made it clear that they have made NO modifications to their defined retirement plans, only the 401(k) plan. The 401(k) has been a bonus for UPSers, not thier entire retirement.

  • Report this Comment On February 05, 2009, at 7:42 PM, BiggerJim wrote:

    The 401(k) match was only offered to management people anyway. Most employees are unaffected.

  • Report this Comment On February 06, 2009, at 9:32 AM, stevegintn wrote:

    OK, MF, so what about my company, FedEx Express, cost-cutting measures?

    Mr Smith took the bold initiative to reduce his salary by 20%, and asked all salaried employes to step up with a 5% reduction. In addition, he froze raises, bonuses, and as UPS, the 401K match.

    All so that no one at FedEx will lose his/her job.

    Doesn't all that rate a kudos?

  • Report this Comment On February 06, 2009, at 5:04 PM, DaHombre wrote:

    I must disagree with Bigger Jim.... All employees who participated were and are eligible for the 401(k) match.

    UPS has the freeze until further notice were as FEDEX put theirs for a minimum of 1 year

  • Report this Comment On February 06, 2009, at 5:19 PM, claaky23 wrote:

    DaHombre is incorrect, UPS only offers the match to Management employees. Non management workers are only affected by the decrease in Stock Purchase Discountl; from 10% down to 5% taking affect in the second quarter.

  • Report this Comment On February 06, 2009, at 8:05 PM, heiny9 wrote:

    Just to clarify, 401K match suspension was only for Management and other non-union employees. There is currently a pension plan in addition to the 401k. Management at UPS understand that compensation is the result of success. They know that they will be compensated fairly. Lower compensation when times are tough, higher compensation when times are good. A fair days wage for a fair days accomplishments. A concept more companies should adhere to. If you are really looking at the bigger picture, UPS doesn't want management who do not adhere to this philosophy.

  • Report this Comment On February 07, 2009, at 9:29 AM, Brad1969 wrote:

    I have put into the 401K for years. I am a driver and NO, UPS does not match for hourly employees. Only management.

  • Report this Comment On February 07, 2009, at 11:11 AM, mbwish wrote:

    Management is the only ones who got a UPS match in 401. Get your facts straight first before reporting. I am a driver and have worked at UPS for 26 years and have contributed to 401 for years and there is no match for non-management.

  • Report this Comment On June 15, 2009, at 12:39 PM, tanging wrote:

    I was a non-union e'ee @ UPS (Non-mng) and I had a 401k match. once I became management, I still received it. As for heiny9's comments, I left the company for a lateral position elsewhere and a massive raise, so not sure how that effects a "fair wage" by any means.

  • Report this Comment On August 09, 2010, at 9:30 AM, beans2217 wrote:

    While CHASP123 is correct that both a retirement and 401K was provided by UPS the retirement in all honestly is only a portion of what the 401K would be. I know I work for UPS. I would rather have the 401K as the match would be more than the retirement. That being said UPS just posted huge numbers for the 2nd quarter yet we still don't have our 401K matching back. We are doing better than two years ago (per the numbers) yet still no word on reinstating the 401K. It is unfortunate huge companies use the economy to take away yet find no reason to use the economy to give back.

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