With the U.S. economy continuing to slide, a key barometer -- the press prefers the term "bellwether" -- has delivered its latest quarterly results: Global shipping giant extraordinaire UPS
In the case of Atlanta-based UPS, earnings per share fell 18.3%, despite a 6.7% bump in revenues. The culprits, if you've been incommunicado for the past year or two, were higher fuel costs and flat delivery volumes.
But before you get the sense that all parts of the company are sucking air, the Supply Chain and Freight unit managed to grow its operating profit by about 50% on higher revenues and margins. At the same time, the U.S. Domestic Package and International Package segments both faced double-digit percentage drops in operating profit, with the U.S. unit seeing that figure slide by 24% year over year.
All in all, the quarterly results weren't especially surprising. A month ago, UPS warned us about the softness. And it also won't be surprising when the company's full year profit is below what might have been expected until very recently. In fact, as management told us about the most recent quarter, it also hit the brakes again on guidance, this time trimming full-year guidance down to $3.50 to $3.70 a share.
UPS announced a couple of months ago that it's working on a deal to carry some packages for DHL, the U.S. arm of Deutsche Post AG. Assuming the deal is inked -- and CEO Scott Davis told his conference call audience that, "Both sides are working diligently and making good progress towards concluding this agreement." -- it'll likely add about $1 billion a year to UPS’ revenues.
Trends at UPS could bear a relationship to a whole host of companies for whom shipping is a big part of their business. For instance, flat to down U.S. shipping volumes, not to mention higher shipping costs, certainly don’t read as positive leading indicators for the likes of Amazon.com
As to our shipping friends, UPS and FedEx are both terrific, nicely managed companies. But until the economy begins to shake off its lethargy and fuel prices become less of an issue, I'm inclined to keep both at arm's length.
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