Updated from 2:19 p.m. EDTAmong the many possible answers to the question of what Brown can do for you, the ability to meet Wall Street's estimates would certainly rank high on the list for investors. That wasn't to be Tuesday for UPS ( UPS). The Atlanta-based package shipper, saying it's feeling the pinch of fuel costs, health care expenses and pension outlays, surprised the market by missing analysts' profit targets and offering lackluster guidance for the full year. Second-quarter earnings rose a weaker-than-expected 7.6% from a year ago to $1.06 billion. On a per-share basis, the profit of 97 cents a share in the quarter fell short of the consensus forecast carried by Thomson Financial by 3 cents. Last year, UPS earned $986 million, or 88 cents a share. Near the close, UPS was lower by $9.05, or 11.3%, to $70.95. Not only was the stock plunging, but sellers were showing commitment to their cause, as 18 times the normal number of shares changed hands. About 42.6 million shares had traded, compared with the average volume of around 2.5 million. UPS went as low as $67.25 earlier in the session, just 50 cents above its worst level of the last year. On a conference call after it released its results, UPS management added to the angst by saying they were seeing signs the economy is slowing. UPS, the world's largest parcel carrier, and its chief U.S. competitor FedEx ( FDX) are often viewed as proxies for the overall health of the economy because of their key role in moving goods for companies and consumers. Shares of FedEx lately lost $1.14, or 1%, to $109.30, and the Dow Jones Transportation Average, where both companies are components, lost 1.7%.
One bright spot for UPS' second quarter was revenue. The top line rose 15.2% from last year to $11.74 billion, exceeding estimates by about $130 million, but that wasn't enough to prevent an exodus from UPS' stock. For the third quarter, UPS forecast earnings of 87 cents to 91 cents a share, below the consensus of 97 cents a share. For the full year, the company said earnings growth is likely to be at the low end of its 11% to 16% guidance. UPS expects the economy "to moderate from the fast growth we saw in the first half of the year," Chief Financial Officer Scott Davis said. "I'm not saying we're going to see a recession or anything like that,
but it's likely to be a slowdown from the pace of the last 12 months." While manufacturing remains strong, retail results are mixed, Davis said, adding that "every indication says there are some challenges and headwinds in the economy." Still, he said, the small-package market is growing faster than the economy. During the second quarter, although earnings grew more than 7%, fuel costs were unexpectedly high, Davis said. UPS' pricing includes a fuel surcharge, but it lags fuel price increases by 45 days. The company's domestic daily ground volume rose 4.6% from a year ago in the second quarter, and total revenue per piece rose 2.7%. The U.S. package division had revenue of $7.46 billion in the latest period, up from $6.94 billion a year ago. International package volume rose 16.5% in the second quarter, as export volume rose 6.5% and nondomestic volume surged 23.6%. The international package division had revenue of $2.23 billion in the quarter, up from $2 billion a year ago. Davis said he expects stronger international growth in the second half.