UPS Reduces Profit Forecast on Fuel Costs, Economy (Update3)
By Mary Jane Credeur
June 23 (Bloomberg) --
United Parcel Service Inc., the world's largest package-delivery company, lowered its second- quarter profit forecast because of rising fuel costs and a slowing U.S. economy.
Earnings will be 83 to 88 cents a share, down from the range of 97 cents to $1.04 projected on April 23, Atlanta-based UPS said today in a statement. The average estimate of 16 analysts surveyed by Bloomberg was 98 cents.
UPS said the ``anemic'' economy is damping demand for air shipments, its most profitable offering, and for U.S.-bound international packages. Jet-fuel costs have jumped 30 percent this quarter, and recouping those expenses with surcharges has a two-month lag time, Chief Financial Officer Kurt Kuehn said.
``The weak U.S. economy, record high fuel costs and shippers trading down -- you combine all these things and it's a tough environment,'' said Craig Hutson, a bond analyst in Chicago at independent research firm Gimme Credit LLC.
UPS fell $2.80, or 4.2 percent, to $63.55 at 5:35 p.m. following the close of regular New York Stock Exchange trading. Earlier, the stock had declined less than 1 percent to $66.35.
UPS's fuel surcharges for air shipments will increase to 32.5 percent in early July, up from 28 percent now, according to the carrier's Web site. Kuehn said the second quarter will be 2008's ``most challenging'' because of the run-up in fuel.
`Hard to Compensate'
``The single biggest factor on this was jet fuel,'' Kuehn said in a telephone interview. ``It's hard to compensate for that until things even out and calibrate a little bit.''
The U.S. economy is still ``very sluggish'' and manufacturing ``continues to deteriorate,'' Kuehn said.
Today's move marks the fourth time UPS has reduced its quarterly earnings outlook since the company's initial public offering in 1999, spokesman Norman Black said in an e-mail message.
Last week, FedEx Corp. posted its first quarterly loss in 11 years and projected earnings that fell short of analysts' estimates. The second-largest package-shipping company also blamed fuel costs and slowing demand for express shipments.
Full-year profit will be $4.75 to $5.25 a share, Memphis, Tennessee-based FedEx said. That compared with the $6.01 average estimate of 12 analysts in a Bloomberg survey conducted before the results were released.
Earnings are ``difficult to predict'' because of volatile fuel prices and an ``uncertain economic outlook,'' FedEx said last week.
To contact the reporter on this story: Mary Jane Credeur in Atlanta at [email protected].
Last Updated: June 23, 2008 18:52 EDT