Monday, August 6

UPS sees slower growth; stock falls

Shares of United Parcel Service sank 4 percent to just below $75 Tuesday after the world’s largest package-delivery company reported a drop in international package sales, which pulled quarterly earnings below analysts’ estimates.

Seen as a bellwether for the U.S. economy because it ships all sorts of products, UPS cut its full-year earnings forecast, citing a weakening global economy for the remainder of the year. The Atlanta- based company also reported second-quarter earnings that fell short of Wall Street expectations.

“Increasing uncertainty in the United States, continuing weakness in Asia exports and the debt crisis in Europe are impacting projections of economic expansion,” Scott Davis, chairman and CEO of UPS, said in a statement.

“Throughout its history, UPS has maintained its strength in all economic cycles and we are making the adjustments necessary to respond to today’s challenging conditions,” Davis added.

Donald Broughton, a transportation analyst at Avondale Partners, says UPS is suffering from the economic difficulties now plaguing Europe, where UPS derives 14 percent of its revenue. Package volume is down 3 percent in the region, and pricing is down over 5 percent, he said.

“You just can’t face those kinds of headwinds when that’s 14 percent of your revenue and still bring the bottom line number home,” he told CNBC.

The recent UPS deal to acquire European package carrier TNT Express will double the company’s exposure to Europe, Broughton said, and it could prove to be a thorn in the company’s side.

“So they’re doubling down on a bet on an economy that’s decelerating,” he said. “That doesn’t bode well for the stock in the near and the intermediate term.”

Broughton said he prefers shares of shipper FedEx, which has greater exposure to Asia and is trading at “a severe discount to UPS.”

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