July 23 - Customers choosing slower deliveries hurt UPS' earnings, and the road ahead isn't a smooth one. Fred Katayama reports.
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Customers trading down to cheaper shipment services hurt UPS profit. The world's largest package delivery company's second quarter earnings fell four percent and met analysts lowered expectations. The company had warned two weeks ago that it would deliver weak numbers.
UPS, like its rival FedEx, is considered a global economic bellwether because it ships goods around the world. UPS blamed its tepid profit on a weak economy and frugally minded consumers. Its operating margins shrank because its customers are choosing slower ground deliveries at lower prices instead of express air shipments.
UPS is in a better position than FedEx because it has a larger ground shipment network in North America and is less dependent on overseas shipments. While UPS revenue grew slowly at its domestic and international package businesses, it fell more than three percent at its freight forwarding unit due to lower demand on trans-Pacific routes.
UPS' shares are slightly outperforming that of FedEx this year, up nearly 19 percent, but are performing in line with the S&P 500.
The road ahead may not be much smoother. UPS restated its lowered outlook for the rest of the year, citing the slow global economy. But RBC analyst John Barnes was optimistic, saying, "We remain positive on UPS as we are forecasting accelerating earnings over the second half 2013 and in 2014 as the company properly adjusts its network for changes in shipper demand."
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