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UPS Underscores Economy's Woes

Stocks in this article: UPS

Both UPS and FedEx say they will reduce costs this year by $1 billion. UPS has reduced its U.S. workforce by more than 10,000 people.

Meanwhile, railroad data released on Thursday seemed to support a glum assessment. Union Pacific (UNP), a principal shipper of container cargo, said first-quarter revenue from container shipping fell by 22%, while revenue from shipping industrial products fell by 29%. Union Pacific did, however, beat earnings estimates.

Rail shipment data compiled at also provided little indication of an impending recovery. In the first quarter, rail shipments in several key areas declined precipitously, then rebounded. But in recent weeks shipments have leveled off or declined.

"Intermodal traffic is dragging along at a low level," said Drew Robertson, who maintains the site and heads New York-based transportation consulting firm Atlantic Systems. "And I am surprised by continuing weakness in coal traffic and grain. People aren't buying U.S. grain and fewer factories are using electricity."

As far as an economic recovery, "everyone was hoping for a V, which would be a sharp recovery," Robertson said. "Now they expect a U, a slow recovery stretched out over time, and they aren't making purchase decisions." In the worst case, he said, the pattern could become a W, "where the recovery sinks back down."

In its first quarter, excluding items, UPS reported earnings of $517 million, or 52 cents a share. Analysts surveyed by Thomson Reuters expected 56 cents. Revenue fell $13.7% to $10.9 billion and missed expectations of $11.4 billion. In the same period a year earlier, UPS earned $906 million, or 87 cents a share.

The per-share earnings exclude an impairment charge of 12 cents related to the earlier-than-expected retirement of aging aircraft, as UPS moved to set aside its entire fleet of 44 DC-8 aircraft. Including this noncash charge, the company earned 40 cents a share.

Consolidated average daily volume fell 3.9% to 14.54 million packages, down from 15.13 million a year earlier. Average revenue per piece declined 6.9%, reflecting changes in product mix, lower fuel surcharges and weight per package, and negative currency impacts.

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