- a lesson from UPS; and
- market psychology.
UPS Throws a Monkey Wrench Posted at 11:49 a.m. EDT on Friday, July 12 Will the real economy please stand up, please stand up? I can't tell you how many people I know who were using United Parcel Service (UPS - Get Report) as the giant chit in the recovery play. It made so much sense. We know that the U.S. is getting stronger. Europe seems to have bottomed. How bad could Asia be? We have so much Internet business. We know that this is one of the best-run transports in a totally transport-driven leg of the bull market. Plus, let's face it, since FedEx (FDX - Get Report) is all the way back to almost $105, why not play the laggard? What can I say? How wrong could investors and traders be? A preannouncement of all things. A darned preannounced shortfall. And a bad one. So $4.98 in earnings per share for the year goes to $4.65-$4.85. Or more like it, $5 and change -- the whisper -- is going to be perhaps 10% too high. You want to get really down and dirty? The reasons for the shortfall read like a disaster roll call:
- Too much capacity in the industry -- this, even though we have had FedEx take out a ton of capacity.
- Customer preference for lower-yielding shipping solutions, meaning that people are feeling less rich and opting for slower shipments. I mean, what's the hurry? It will get their eventually. Where is the urgency in the economy? Don't look at UPS.
- And worst of all, a slowing U.S. industrial economy. Huh? I thought it was accelerating.
Now, before we jump to conclusions, we do know that there are some parts of the economy -- at least the U.S. economy -- that fly in the face of this preannouncement. Auto sales are very strong. You don't get a big increase in the price of gasoline if there isn't a pickup of some degree in business. We know there is job growth.