ATLANTA ( TheStreet) -- Like the economy, UPS ( UPS) has recovered during 2009, but recently it seems to have stalled a bit. The largest overnight package carrier, which at any moment has 6% of U.S. GDP and 2% of world GDP in its system, doesn't have a clear signal to offer on which way the holidays will go. It is hiring holiday workers at a pace slightly below its norm. And it predicts a long, slow recovery. UPS shares reflect the caution. They have climbed 16% this year, slightly less than the 18% climb of the S&P 500. Investors greeted the company's Oct. 22 earnings report with a yawn, as shares closed that Thursday at $57.10, exactly the same price where they closed the day before. Shares were trading Tuesday morning at $54.26, down 26 cents. On the company's earnings call, CFO Kurt Kuehn said the holiday outlook from customers is unclear, with a "wide divergence of opinions. We're seeing some of the brick-and-mortar players be fairly conservative, but of number of dot-coms see substantial increases." He said UPS will hire about 50,000 temporary holiday employees, "a little below what we normally do." UPS won't say how many holiday temps it hired last year, when it was busily cutting employment, but in 2007 it hired about 60,000. Holiday hires typically are recruited at various sites including the UPS Web site. Normally, the fourth quarter is the company's most profitable: in the fourth quarter of 2007, net income was a record $1.1 billion.
Avondale Partners analyst Donald Broughton is not overly excited about UPS, even though he recently raised his 2010 full-year estimate to $2.30, reflecting global economic improvement. He doesn't much value the company's expectations that it can retain two-thirds of the $1 billion in costs cuts implemented during the past year, adding that FedEx ( FDX) made $3 billion in cuts and will retain $2.6 billion of that. "UPS' ability to cut costs is muted because employees are guaranteed a 4.5% increase in wages in its contract with the Teamsters, which prevents UPS from doing what FedEx did, freezing pay for hourly workers," Broughton says. "UPS may be the best manager of unionized employees in the world, but that comes with challenges." Broughton also maintains that UPS is losing share to FedEx in its ground operations. He says UPS average daily ground volume has declined by 6.2% this year, while FedEx is reporting a 10.1% increase in ground volume during the same period. A big reason, he said, is SmartPost, a product where FedEx and the United States Postal Service partner to deliver high volumes of small packages to individual residences for business customers. Kuehn has said that SmartPost takes products from the postal service, not from UPS. UPS offers similar products, which spokesman Norman Black said have seen substantial increases this year but are not separately reported. Black said UPS has not lost market share to FedEx in the conventional ground market. Meanwhile, analyst Helane Becker of Jesup & Lamont rates UPS a buy because "a recovery in 2010 will drive higher earnings." Her price target is $63, or 22 times her estimate for 2010 earnings of $2.84 a share. And Standard & Poor's analyst Jim Corridore estimates 2010 earnings of $2.50 a share. He writes, "UPS is seeing signs of improving business conditions and is effectively cutting costs (and) continues to generate strong free cash flows." His 12-month target is $65.
-- Written by Ted Reed in Charlotte, N.C. .