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UPS Taps the Guidance Brakes

By David Smith – Updated Apr 5, 2017 at 8:41PM

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UPS has provided yet another indication of U.S. economic softness.

It appears that our sputtering economy is slowing things down at the world's largest delivery company, a circumstance that may not bode well for companies in a variety of industries.

United Parcel Services (NYSE: UPS) management has reeled in the company's earnings forecast for the March-ending quarter, which will be reported on April 23.

According to a statement from UPS headquarters in Atlanta, the company expects to report earnings of $0.86 or $0.87 per share. Previous quarterly guidance was in the range of $0.94 to $0.98 a share. Guidance for the full year was unchanged from the $4.30- to $4.50-per-share target issued earlier, although you've gotta believe that a pullback there is becoming inevitable.

In lowering its guidance, UPS said, "The U.S. economy has continued to weaken, causing a reduction in domestic package volume and a shift away from premium products. Significantly increased fuel costs in the quarter also contributed to the lower-than-expected results."

By the very nature of their businesses, UPS and primary rival FedEx (NYSE: FDX) are typically viewed as important barometers of the nation's -- and sometimes the world's -- economic health. When it told us about its results lat month, FedEx said that while its revenues had increased by about 10%, its operating margin had fallen by about 70 basis points and its net income had slid by 6%.

I suppose I've grown somewhat weary of economic talking heads trotting out the "technical definition" of a recession (two consecutive quarters of negative growth) and harrumphing that thereby we can't really tell we've been in a recession until it's over. Other than "negative growth" being a decided oxymoron, excessive dependence on that definition avoids facing an apparent truth: We're knee-deep in a potentially severe and lengthy recession. UPS has simply confirmed the obvious from its important vantage point.

In the weeks ahead, we'll almost certainly receive reports from a variety of big companies indicating sloppy U.S. results, offset to one degree or another by strength overseas. I'm talking here about the likes of Mexican cement producer Cemex (NYSE: CX), equipment manufacturer Caterpillar (NYSE: CAT), and perhaps chemicals manufacturer Dow Chemical (NYSE: DOW).

For my money, the message here is that investing today requires more care and patience than has been the case for a long, long time. UPS, for instance, is a solid company, a leader in its field. But those who take on or already own its shares shouldn't be looking for an overnight pop.

For related Foolishness:

UPS and Dow Chemical are Income Investor recommendations, and FedEx is a Stock Advisor pick. Cemex is a pick of both the Stock Advisor and Global Gains teams. Treat yourself to a free 30-day trial subscription to any of these services.

Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned. He does, though, request a delivery of your comments and questions. The Fool has a disclosure policy.

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Stocks Mentioned

United Parcel Service, Inc. Stock Quote
United Parcel Service, Inc.
UPS
$164.33 (-2.10%) $-3.53
Caterpillar Inc. Stock Quote
Caterpillar Inc.
CAT
$164.24 (-3.70%) $-6.31
FedEx Corporation Stock Quote
FedEx Corporation
FDX
$149.33 (-3.37%) $-5.21
DuPont de Nemours, Inc. Stock Quote
DuPont de Nemours, Inc.
DOW
CEMEX, S.A.B. de C.V. Stock Quote
CEMEX, S.A.B. de C.V.
CX
$3.44 (-1.71%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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