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Customers choose to use ground-based options over more expensive air shipments
By Mary Jane Credeur
Bloomberg News
Published on Wednesday, Jul 23, 2008
United Parcel Service Inc., the world's largest package-delivery company, said second-quarter profit fell 21 percent as fuel costs rose and the cooling economy slowed domestic shipments.
Net income was $873 million, or 85 cents a share, compared with a year-earlier profit of $1.1 billion, or $1.04 a share. Revenue rose 6.7 percent to $13 billion, Atlanta-based UPS said Tuesday.
The decline reflected customers' shift away from air shipments in favor of cheaper ground-based options. While U.S. package volume could drop 2 percent in the second half of the year, earnings will be ''modestly better'' than the first half if business conditions don't deteriorate further, UPS said.
''Although things remain very uncertain, the sky is not falling,'' said Dan Ortwerth, an analyst at Edward Jones & Co. in St. Louis. ''With the second-half guidance, they're saying they're not quite sure how things are going to go'' in the third and fourth quarters.
It is the first time UPS has given a forecast on a half-year basis instead of quarterly.
Per-share profit matched the
85-cent average of 14 analyst estimates compiled by Bloomberg News. Sales were projected to be $12.8 billion, based on 12 estimates.
UPS rose $2.65, or 4.5 percent, to $62.11 in Tuesday trading. Shares have tumbled 12 percent this year.
Second-half profit will be $1.78 to $1.98 a share, UPS said. Economists surveyed by Bloomberg estimate 88 cents on average for the third quarter and $1 for the fourth, or $1.88 for the second half.
The company reduced its full-year outlook to $3.50 to $3.70 a share, from a previous range of $3.90 to $4.20, partly reflecting its lowered second-quarter estimate in June.
Competitor FedEx Corp., the second-largest shipper of packages in the U.S., reported its first quarterly loss in 11 years on June 18 because of rising fuel expenses and a writedown on its Kinko's unit.
The company is cutting costs by freezing nonsales hiring, reducing corporate travel and urging pilots and package-car drivers to reduce fuel use, he said.
Getting drivers to cut 1 mile per day from their routes will save $10 million worth of gasoline and diesel per year, the company said.
UPS controls about 51 percent of the U.S. package-delivery market, followed by FedEx's 31 percent share, according to SJ Consulting. The U.S. Postal Service controls about 13 percent, and DHL has 5 percent.
United Parcel Service Inc., the world's largest package-delivery company, said second-quarter profit fell 21 percent as fuel costs rose and the cooling economy slowed domestic shipments.
Get the full article here.
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