Economic Doldrums Take A Toll On UPS

Economic Doldrums Take A Toll On UPS
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Economic Doldrums Take A Toll On UPS

United Parcel Service, Inc. (NYSE:UPS) the world’s largest delivery company, and a proxy gauge for economic conditions, declared results for its second quarter that missed market expectations. The company also cuts its outlook for the fiscal year of 2012 in view of a bleak global economic outlook.

It posted an EPS of $1.15 a share on revenues of $13.35 billion, against expectations on the street of $1.17 and $13.7 billion respectively. Net income came in at $1.12 billion, higher on the year ago period by about 2.2 percent. This is the second quarter on the trot, that the company has missed on estimates.

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Benjamin Hartford, senior research associate at Robert W. Baird in Milwaukee, Wisconsin, was quoted by Reuters as saying, “The on-going international weakness, particularly on the air freight side, and the on-going Euro zone crisis, is really what drove the shortfall this quarter, and I suspect is weighing on the full-year outlook.”

United Parcel Service, Inc. also trimmed its EPS outlook for the full year from the prior estimate of $4.75 to $5.00 per share to $4.50 to $4.70 a share, as customers are stated to be cautious on the economic outlook in the second half of the year.

Reasons for the performance were cited by Chairman and CEO Scott Davis as follows:

“Increasing uncertainty in the United States, continuing weakness in Asian exports, and the debt crisis in Europe are impacting projections of economic expansion. 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.”

The company is in the midst of closing its largest ever acquisition – the purchase of  TNT Express NV (PINK:TNTEY) (AMS:TNTE), and expects to close the transaction in the fourth quarter. The $6.5 billion acquisition will expand UPS’ presence in Europe, giving it market leadership while boosting its reach in Asian and Latin American markets. However, the EU anti-trust regulators are said to be wary of the merged entity’s huge market share, and are currently investigating the transaction.

In June, difficult economic conditions also prompted rival, and no. 2 package deliverer, FedEx Corporation (NYSE:FDX), to cut its full year profit estimate.



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