2nd UPDATE: UPS 1Q Net Down 56%, Expects 2Q Profit Below Views
April 23 2009 - 2:12PM
Dow Jones News
United Parcel Service Inc. (UPS) said Thursday that an economic
recovery in the U.S. and Asia is expected by early 2010, though
Europe may take longer to revive.
The world's largest package delivery company by revenue is
viewed as a bellwether for global economic activity, and the broad
slowdown saw it report a 56% drop in first-quarter earnings and
offer disappointing guidance for the three months to June 30.
But despite what Chief Financial Officer Kurt Kuehn said is
shaping up as a "challenging" second quarter, he and Chief
Executive Scott Davis voiced optimism the U.S. economy "will hit
bottom later this year" and then begin a recovery.
They said economies in Asia should recover on the same basic
trajectory, although Europe likely will lag, partly because of
slower enactment of government stimulus programs.
As for China, Kuehn noted that it remains a relative bright spot
amid the global slowdown. UPS' Chinese export volume -- meaning
Chinese businesses shipping goods out of the country -- was up 10%
to 12% in the first quarter, about the same growth rate as in the
fourth quarter.
"Clearly, [China] is not growing at the rate it was [prior to
the global downturn], but reports of China's demise are greatly
exaggerated," Kuehn said in an interview.
Still, UPS shares were off 2.5%, at $53.37, in recent trading
after the company's first-quarter results fell short of Wall
Street's consensus expectations and after Kuehn made clear that
conditions may well get worse before they start to improve.
The company said average daily U.S. domestic shipping volume
will be off 4% to 6% in the second quarter, compared to a 4.3% drop
in the first quarter.
"The second quarter will be a bit more challenging than the
first," Kuehn said on a post-earnings conference call with
analysts.
UPS forecast second-quarter earnings of 45 cents to 55 cents a
share. Analysts polled by Thomson Reuters projected 65 cents.
The company reported first-quarter net income of $401 million,
or 40 cents a share, down from $906 million, or 87 cents a share, a
year earlier.
The results included a writedown related to the retirement of 44
McDonnell-Douglas DC-8 aircraft. The company said it was retiring
the entire DC-8 fleet earlier than expected because of
overcapacity. Earlier this month, competitor FedEx Corp. (FDX) said
it was grounding 14 aircraft for similar reasons.
Excluding items, UPS pegged its first-quarter profit at 52 cents
a share, the low end of its February forecast and below Wall
Street's target of 56 cents. Revenue fell 14% to $10.94 billion,
compared to analysts' consensus expectation of $11.44 billion,
according to Thomson Reuters.
Operating margin fell to 6.6% from 11.8%, while consolidated
average daily volume -- which includes international shipments --
slid 3.9% and average revenue per package fell 6.9%.
The company said per-package revenue slipped in the quarter
because customers opted to reduce package weights to save money,
and because of reduced fuel surcharges.
-By Bob Sechler, Dow Jones Newswires; 512-394-0285;
bob.sechler@dowjones.com
(Kerry E. Grace contributed to this report)