Global slump hurts UPS profit, shares fall

CHICAGO (Reuters) - United Parcel Service Inc reported a lower-than-expected profit and gave an outlook below analysts' views as the global economic downturn has caused fewer packages to be shipped, sending its shares down as much as 7.5 percent.

The U.S. economic bellwether warned that its second-quarter outlook would likely fall below analysts' expectations and said that while the economic recovery could begin as soon as the end of this year, it would more likely come in 2010.

"The results are miserable, but we expected misery," said Edward Jones analyst Dan Ortwerth. "And all bets are off as to when that misery will end."

The world's largest package delivery company reported first-quarter net income of $401 million, or 40 cents a share, compared with $906 million, or 87 cents a share, a year earlier.

Excluding an impairment charge for the early retirement of the company's fleet of DC-8 jets, UPS earned 52 cents per share in the quarter. Analysts on average had expected earnings of 56 cents a share, according to Reuters Estimates.

Atlanta-based UPS said first-quarter revenue fell to $10.94 billion from $12.68 billion. Analysts had expected $11.42 billion.

But Ortwerth said UPS's healthy cash position of $4.3 billion and cash flow of $1.9 billion at the end of the first quarter are strengths he is stressing to his clients.

The decision by UPS to retire its DC-8 fleet was a sign of how robust and flexible the company is, he added.

"This is a very strong company," he said. "And in a storm that's what you want -- a company that's able to ride out the storm."

LOOKING ABROAD

UPS said that despite a decrease in revenue for its international package business, the operating margin for this business was 13.1 percent, which analysts said was a solid number especially given the global downturn.

"International packages are really saving the bacon (for UPS)," said Keith Schoonmaker, an analyst at Morningstar. "The margins on international packages are higher than for U.S. domestic packages and it's impressive that they have managed to maintain a healthy margin in that business."

Like Memphis-based rival FedEx Corp, UPS has seen its overall business hit by the global recession. Last month, FedEx reported a 75 percent decrease in quarterly net profit.

Both companies are considered bellwethers because people ship more packages in a boom, but shipments wane when the economy cools.

Recovery may not come as soon as many have hoped.

"Economic indicators tell us recovery in the United States might begin late this year, but more likely not until 2010," Chief Financial Officer Kurt Kuehn said in a statement. "So we expect the second quarter will be another difficult one."