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.

By Jonathan Berr Jul 15, 2013 9:45AM
Shares of UPS  (UPS) got pummeled Friday after the world's largest package delivery service said its second-quarter earnings and results for the year would be far worse than analysts had expected.

 

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.

 

File photo of a UPS package (© Paul Sakuma/AP Photo)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.

Tags: FDXUPS
20Comments
Jul 15, 2013 11:32AM
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I used to work for UPS at one time. They always cry poor mouth at union negotiation time. If anyone thinks their union drivers are 'lazy' you are sorely misinformed.  It's a colossus of a company that gets their pound of flesh out of it's employee's, but runs like a well oiled machine. I have little doubt that they will figure out the way back to profitability. Right now they are working in more natural gas trucks for their fleet. They watch every dime.
Jul 15, 2013 10:13AM
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I don't think he is thinking of ways for the Muslim world to crush America; he IS thinking of new lies, deception and disinformation to convince the American consumer that a 'recovery' is under way to get them do what they do best: Consume. No, Obama does not need the Muslim world to crush America, he is doing a pretty fair job all by himself.
Jul 15, 2013 11:20AM
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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.

Jul 15, 2013 10:57AM
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Fed Ex and UPS were built on the perceived process flow when the world had real operations and a lot less dedicated administration. How fascinating does it get-- the more we evolve into a world with a few gigantic businesses controlling everything, the more the facilitation aspects that make "big" tick, end up bankrupt. Small business can't afford high-priced shipping.
Jul 15, 2013 1:20PM
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help me out  here  cutting 3600 hundred  workers 1.7 billion reconstruction( written off) of course they are going to  show a profit.   but  not because  business got  better or am i looking at this  wrong
Jul 15, 2013 10:42AM
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"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? 

Jul 15, 2013 11:13AM
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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."  ..........

Jul 15, 2013 1:37PM
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Given the decline over the past 10 years in CUSTOMER SERVICE it's no wonder they are not doing as well as they should.  Used to be I shipped UPS because the packages arrived in good condition....now they look like they were air mailed wothout the chute.  I have had to file several damaged claims due to packages being broke open due to rough handling.   The claims were always promptl paid but the cuastomer service was so what!!!
Jul 15, 2013 11:14AM
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>>> 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?

Jul 15, 2013 2:01PM
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UPS will be fine.  Not as certain about FED EX.  USPS might have a rallying point and do use them and they have been right on.  The union aspect is highly volatile and debate serves no purpose, here.  We know what we have in office and that is not debatable.  He is given too many kudos for doing, nothing.  The "unions" and this person are not as "intertwined" as many think.  Think he knows this and is getting his "chain" pulled.  Have a nice week, all.
Jul 15, 2013 1:53PM
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boohoo ups-supply and demand-competition-pay the bigwigs less-get rid of the teamsters-cry me a river-feel bad for ups and eliminate food stamps-yeah thats logical
Jul 15, 2013 11:06AM
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Get rid of the CEO and board of directors. Lower their pay to 100 time of the workers not the 10,000 times they get payed. But then protect the rich and hurt the workers  the GOP motto.
Jul 15, 2013 11:18AM
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teamsters are sell outs they screwed a guy I know over in the Oak Creek WI plant some labor relation peon named Larry and the crap union did nothing.
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