UPS shares fall 14%
 

UPS Profit Misses Estimates; Shares Fall on Outlook (Update7)

July 25 (Bloomberg) -- United Parcel Service Inc., the world's biggest package shipping company, said second-quarter profit rose less than analysts' estimates and reduced its forecast as international margins fell, sending the shares to their biggest one-day drop ever.

Net income increased 7.6 percent to $1.06 billion, or 97 cents a share, from $986 million, or 88 cents, a year earlier, UPS said today in a statement. UPS forecast third-quarter profit of 87 cents to 91 cents a share, trailing analysts' 97-cent average estimate in a Thomson Financial survey. UPS also said it would buy back $2 billion more of its shares.

Rising fuel costs eroded international margins, to 18.5 percent from 19.9 percent, affecting the fastest-growing business segment at UPS. Atlanta-based UPS and rival FedEx Corp. benefited from overseas shipments as global economic expansion drove freight demand. Sales rose 15 percent to $11.7 billion.

``I can't find anything to get excited about,'' said analyst Andrew Meister of Thrivent Financial for Lutherans in Appleton, Wisconsin, holder of 526,300 shares as of March. ``They missed Street estimates and lowered expectations. It looks like inflationary pressures are cutting into their profit margins.''

UPS's forecast also damped other U.S. stocks as investors interpreted the outlook as a signal that economic growth may be slowing. ``While it is likely an opinion stemming from UPS's current business trends, it sounded like a harbinger for softer numbers,'' Meister said.

Shares Fall

Shares of UPS fell $11.59, or 14 percent, to $68.41 at 12:07 p.m. in New York Stock Exchange composite trading. FedEx shares fell $3.13, or 2.8 percent, to $107.31. The biggest one-day drop in UPS shares was 8.7 percent in April 2000. UPS held its initial public offering in November 1999.

Second-quarter profit at UPS had been estimated at $1 a share by Jon Langenfeld, a Robert W. Baird & Co. analyst ranked by StarMine Corp. as the most accurate for UPS. That also was the average of 15 analysts in a Thomson Financial survey.

``There is strong downward pressure on international margins,'' said Donald Broughton, a St. Louis-based A.G. Edwards analyst who rates UPS shares ``hold'' and doesn't own them. ``Estimates are going to come down, and the stock is going to come down as well.''

In January, UPS said it expected second-quarter profit would be 97 cents to $1.01 a share. The company also forecast earnings per share for all of 2006 to increase 11 percent to 16 percent, or a range of $3.85 to $4.03. Today, UPS said the full- year profit would be ``at the low end'' of that guidance.

``It looks like expense control was an issue last quarter,'' Broughton said. ``I suspect it will be again this quarter.''

Margin Improvement

Chief Financial Officer Scott Davis said in an interview that higher jet and diesel fuel expense cut profit by $25 million as those costs rose faster than the company anticipated.

UPS expects ``excellent operating profit growth'' in the international package business during the third quarter, with margin improvement from the second quarter, Davis said on a conference call. He didn't say how much.

Domestic business will have a ``minimal increase'' from last year's third quarter, because rail, health care, pension and fuel costs are rising, Davis said.

UPS expects the U.S. economy to ``moderate,'' with a ``slight impact'' on the company's results, Davis said.

`Real-Time Indicator'

``We are a very good real-time indicator of the economy,'' Davis said in the interview. ``We are not a good leading indicator. In today's just-in-time world, people just don't stock inventory.''

U.S. business accounted for $1.1 billion of UPS's $1.5 billion in profit before interest and taxes in the third quarter of 2005. The international segment contributed $318 million. Net income for the quarter last year was $953 million, or 86 cents a share.

Domestic package revenue, UPS's largest unit by sales, rose 7.5 percent, helped by a margin increase to 16.5 percent from 16.1 percent. Average daily volume rose to 13.3 million packages, a 4.7 percent increase.

Profit in the unit that manages and hauls freight shipments rose 38 percent to $47 million as sales rose 63 percent to $2.04 billion. Profit margin growth lagged behind the revenue increase because of costs to integrate an air freight unit bought last year.

International Growth

International package revenue rose 11 percent to $2.23 billion in the second quarter. Package volume growth slowed to 12 percent from 29 percent in the first three months of the year. Three fewer operating days in Europe hurt the results, UPS said.

``The global small package market continues to expand,'' Chief Executive Officer Mike Eskew said in the statement.

International operating profit climbed 4.3 percent to $414 million. That trailed growth of 13.5 percent in the first quarter and 30 percent for 2005. For the third quarter, profit growth from international shipments will exceed the 8.6 percent rate for the first half of 2006, Davis said.

Davis said the company still expects 30 percent revenue growth this year in China, where UPS and others are expanding operations by adding flights.

UPS's lowered forecast ``is a reflection of both ongoing cost pressures and more muted volume expectations,'' said Thomas Wadewitz, a New York-based analyst for J.P. Morgan Securities Inc.

Higher fuel bills, delays in fuel surcharge recoveries and rising repair costs pushed up operating costs by 16.2 percent, Wadewitz said, more than his 14.4 percent estimate.

Today's buyback announcement comes 21 months after the UPS board approved a $2 billion share-repurchase program. The new program would pay for 25 million shares, based on yesterday's closing price. UPS has 1.1 billion shares outstanding.

Huh
 

Still think we should vote down this TA and get more? Idiots!

You could see that one coming a mile away...

FreightDawg2, I wouldn't think of calling you an idiot because of your views on this matter. But please consider a few things. This was a small earnings miss and a huge drop due to intermediate term outlook.

Now why do you think the UPS board of directors approved a stock buy back of multi Billion dollar proportions a few months ago? Why do you think they are sinking a Billion in new sort facilities? Why do you think they are buying Billions of dollars worth of new aircraft?
If you conclude that they believe business will remain good in the long term you might be right, they are making some very big bets to that effect. The stock may go lower short term, but UPS already has the money from the sale of the stock so this really won't have any effect on operating budget.
When the going gets tough only the strong survive and they end up with bigger market share.
Pilot pay only represents .3%(note the decimal) of total operating expense at UPS. Double that and we are still only talking a fraction of 1% of operating cost. Concluding that we are a drag on profits when we are such a small percentage of the workforce with the highest profitability doesn't make much sense.

Actually FD,
Stike while the irons are hot, I say vote Hell no and then put UPS on the defensive.

Next question...

BBDC8

I should have gone to FedEx!!

What is OUR Market Value
 

How much do you think we are worth, not to UPS but in Market Value...? Gents, I think with this TA we have reached that value. See Tom N.....m's post on the B&G. Don't vote down a TA because someone told you that you were worth more. You have to realize that at some point your value becomes a significant liability. We may already be there!:cool:

Using that logic, one would be forced to conclude that management pilots are a much greater liability. Do you think UPS has reached the same conclusion? Have you seen the steady raises and bonus money that middle management has recieved over tha last five years? In many cases their one year raise ex-bonus has been more than I will get after waiting FIVE years for a raise.
Why would any negotiator offer their best deal on the first written offer?

Exactly. ;)

jungle,
Where did you get the info that the air group has the highest profitability? I have heard that the air group is the opposite but necessary for the operation. I am just wondering where your info comes from. Thanks.

Oh geez. The grass isn't always greener on the other side.

:)

I have asked the same question for years now. From what I have been told, the airline does have the most profitability within the company. Just to give you an example, one full can on the 8 pays for the the entire cost for that flight. You can do the math. The 8 holds 17 A2 cans and 1 slightly smaller L9 can on the top. You can also get about 4-5 more loose load cans in the belly. So yes, for the size of the air ops at UPS, they do in fact have the highest profitability of any other group.

Jungle
 

Interesting that you would think that the TA was the FIRST written offer. Do you think that our NC was so lame to accept the FIRST offer? Do you not think that the TA was the cumlmination of MANY offers and counter-offers? I have to believe that JM and BT are more savvy than that and we are seeing the end of the road, not the beginning. I know the numbers may not be what we think we are worth, but my buds in management tell me that we aren't worth what we are being paid now!:(

. . . . . . DUH !

ups or fedex
 

To stay or go..

Based on your name here, I don't think you will ever be happy anywhere! Like freightpuppy says, the grass isn't always greener. There are warts at every company; you just have to be able to live with them.

Instead of worrying, enjoy your family and friends and pour a single malt and enjoy the sunset. Life is more than just ups or fedex, be happy that you can afford the single malt no matter which you chose...

JMO

Pilot7576

Couldn't agree more! Well said...

i guess what is important is to not be the wart.

Now there's a smart bunch of guys. :rolleyes:

Freighpuppy, Take a look in the annual stockholders report. It breaks earnings down into dollars and percentages. The highest profit margins are in the International package business(although they are not the biggest dollar number, that goes to domestic, with overnight domestic at the highest margin for domestic). Until they build roads across the ocean or drive trucks on the sea floor at 600 MPH, this shouldn't change and is anticipated to continue growing.

You guys should quit arguing and buy some of that stock while it's on sale. I did.

What is the typical schedule like for a a UPS FO? I am building my hours and aquiring my ratings as a UPS driver. I have been with the company for 12 years. I have a degree and 4 yrs Navy as a controller. I'm 34 yrs old and I have 4 friends that are UPS pilots. I am just wondering how much time I am going to have to spend away from my family. My passion has always been to fly and no I have the chance but....is it worth the sacrifice? I can build the necessay tin turbine hours in a couple years with Amerifreight. My problem is a have 12 yrs with UPS now and 75K while all along home every night. If I am going to pursue this I have to stay at it, however, if it is not conductive to a quality family life then I need to know now and enjoy flying my Cessna and continue as a UPS driver.

If being home every night is how to define quality family life, then forget it.

I guess it all depends on what you need in quality family life. I believe piloting, as a profession, demands a great sacrifice with respect to family life. Most guys go ahead and live with it. Guys like Skyhigh would say no way it's worth it. To each his own.

IMO, driving a UPS truck 12 hours a day and being exhausted when getting off of work mitigates being home every night.

I think you would find UPS the same kind caring company that you enjoy today as a truck driver. <G> The exception being as a pilot you would then be considered a liability dragging down the profits of a fine company.

Do you do a lot of shift work now? Most of UPS flying is done during the odd hours of the day. Also I would plan on being gone from home at least 12-14 days a calendar month. Sometimes it would be better but then that but don't plan on this happening.

HAVING to go fly when the company wants is nothing like GETTING to fly your Cessna when you want. Its a good job, so is the one you have, keep it in perspective.

I just have to know why this was on a thread that hasn't had a post since last July? It isn't even on topic.

I was wondering the same thing, Tiger. SScottkey, if you live in SDF your family issues will be much easier to deal with. If you have 4 friends that are pilots, they can probably give you much more specific answers to your questions than we can

dang... in the school house all day and no mention of the stock falling 14%. glad to see this was a little dated...

Forgive me for offending you. I'll be more careful next time to stay on the subject at hand.

That is just the issue they have different domiciles. I actually live a couple hours from SDF.

I was't offended. Sorry if I came across defensive. I was honestly curious.

I wish you the best in your career choice. I am sure it is a tough one.

Blue Skies