UPS delivers a downbeat package
Its latest quarterly report shows a company struggling to adapt to changes in its market. FedEx appears ahead on that score.
The company now forecasts per share profit, excluding one-time items, to be $1.13 in the current quarter, lagging the $1.20 analysts had estimated. This would be the first year-over-year quarterly profit decline in more than three years, according to Bloomberg News.
UPS also now says its yearly earnings will be $4.65 to $4.85 per share, down from its earlier estimate of $4.80 to $5.06, which was already below analysts' targets when it issued the estimate earlier this year.
Although both UPS and archrival FedEx (FDX) are widely seen as bellwethers for the broader economy, the package delivery companies' woes aren't new. Demand for expensive air-based shipping service has plunged since the Great Recession, and many companies now prefer to use less costly alternatives. As a result, too many planes are carrying too few packages.
FedEx has already made some bold moves to address the situation by grounding older planes earlier than it had planned and offering buyouts to 3,600 workers as it undertook a $1.7 billion restructuring. At UPS, however, chief financial officer Kurt Kuehn could only tell analysts it was "adapting to meet" changes in the market. He didn't offer specifics.
To make mattes worse, UPS is in the midst of negotiating a contract with the Teamsters union. These types of talks can be unpredictable and may cause customers to switch to FedEx until an agreement is reached because of the potential for a work stoppage.
With a price-to-earnings multiple of 103.6, UPS is too expensive to recommend even though analysts peg its 52-week price target at $96.47, about 12% higher than where it recently traded. Besides, FedEx is a far more compelling value even though its share performance has lagged UPS's for years.
Not only is FedEx's valuation a more reasonable 21.12, but analysts expect the shares to reach $114.22 in the next 52 weeks, roughly 10% higher than where they currently trade. Though both companies are going through a rough patch, FedEx seems to have a better handle on its problems than UPS. That could make a big difference as business conditions get more difficult for both companies.
Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.
Most Companies do "cry broke" or bad earnings, when approaching or during contract talks..
"Just an age old tactic..."
Real easy to make, if they way overstated their guidance in recent past.
Never trust many analysts, they are nutured to write some "glowing predictions."
Many have vested interest.
"To make mattes worse, UPS is in the midst of negotiating a contract with the Teamsters union."
Maybe UPS is crying poor as a negociating tactic with the Teamsters?
It's about "competition" nothing else, oh yeah and the recession also..
This is also the "slow shipping" time of year...
Competition..in many forms, maybe other players on the block..??
And the USPS has had a "strong push" to use it's services for the last couple years.
"If it fits, it ships"
I have used "Priorty Mail" for E-bay and other matters.
If I want it "there now"....I go with Fed-Ex....And Big Brown isn't too bad.
Don't know about AirBourne or DHL anymore...
Forrest, "Life is like a box of chocolates." ..........
>>> Lower their pay to 100 time of the workers not the 10,000 times <<<
I dunno. I think that a CEO deserves whatever he can get, provided he/she is successful in a company's success, the metrics of that success being growth in revenue as well as profit. The problem is that many (most?) CEOs get deals that ensure them high pay regardless of their performance. How many sports or rock stars get the same deal if they can't deliver?
Copyright © 2014 Microsoft. All rights reserved.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.