(Adds analyst comments, details on industry)
By Nivedita Bhattacharjee
July 12 United Parcel Service Inc, the
world's No. 1 package delivery company, on Friday forecast
second-quarter profit below Wall Street expectations, signaling
that the global economic recovery still has a ways to go.
UPS, an economic bellwether along with rival FedEx Corp
because of the high volume of goods they move around the
world, blamed a weak U.S. industrial economy, customers' trading
down to slower but cheaper shipping services, and overcapacity
in the global air freight market.
The earnings warning sent UPS shares down more than 5
percent in midday trading, while FedEx fell 2.4 percent.
Globally, manufacturers are dealing with a number of
headwinds, including a weak economic recovery in the United
States, slowing growth in China and recession in Europe. The
Institute for Supply Management's monthly survey of global
purchasing managers, a gauge of economic activity, has been
essentially flat for seven months, suggesting companies are not
aggressively restocking their inventories.
Last month, Terex Corp, a top maker of construction
and mining equipment, slashed its full-year earnings forecast,
citing deceleration in the economic recovery in North America
and continued weakness in Europe.
"A lot of companies are being smarter about managing their
supply chain and deferring their shipping wherever they can to
save money," said analyst Joshua Herrity of New York-based
Telsey Advisory Group.
Analyst Helane Becker of Cowen & Co said many UPS customers
have been focused on cost-cutting. "We do not expect to see a
significant uptick in next-day priority services until we see a
global recovery, and not just a U.S. recovery," she said.
Still, UPS's large ground shipment network in North America
puts it in a better position than FedEx, which focuses more on
international air shipments.
FedEx said in June it was raising shipping rates and cutting
jobs and costs as excess capacity in the air freight market had
more than offset increased shipments.
UPS said on Friday it expected second-quarter earnings of
$1.13 per share. Analysts on average expected $1.20, according
to Thomson Reuters I/B/E/S.
UPS cut its full-year earnings forecast to $4.65-$4.85 per
share from $4.80-$5.06.
The company said package volume growth had also been hurt by
labor issues. Last month it said its Teamsters union workers had
approved a five-year contract covering about 235,000 employees,
but contracts for freight workers and 17 local supplemental
contracts had not been settled.
Morningstar analyst Keith Schoonmaker said the risk of a
strike had passed and that the company still had advantages over
"Slightly lower growth this year does not move the needle
significantly on our fair-value estimate," he said.
UPS is scheduled to report second-quarter results on July
(Additional reporting by James Kelleher in Chicago and Sagarika
Jaisinghani in Bangalore; Editing by John Wallace)