UPS lowers second quarter and full-year earnings guidance

In a second quarter earnings pre-announcement, UPS said today it is lowering its diluted earnings per share guidance to $1.13, which is below the Wall Street estimate of $1.20. Along with lowering its second quarter guidance, the Atlanta-based transportation and logistics bellwether is also reducing guidance for 2013 adjusted diluted EPS to a range of $4.65-to-$4.85, which is 3-to-7 percent higher than last year.

The company cited various reasons for lowering its quarterly and annual guidance, including overcapacity in the global air freight market, increasing customer preference for lower-yielding shipping solutions, and a slowing U.S. industrial economy driving revenue and operating profit below expectations, coupled with some slowing in package volume growth as a result of labor negotiations.

Even with the lowered guidance, UPS remains optimistic about future growth.

“We expect the second quarter market trends to persist and UPS is adapting to meet these conditions,” said Kurt Kuehn, UPS Chief Financial Officer.  “Despite downward revisions to economic forecasts for the second half of the year, we anticipate solid profit growth.”

In April, UPS reported that first quarter revenue rose 2.2 percent year-over-year to $13.43 billion, with operating profit up 0.7 percent at $1.58 billion. Quarterly earnings per share—at $1.04—saw a 7.4 percent gain and beat Wall Street analysts expectations of $1.01 per share.
Company officials explained that the first quarter revenue gain was largely driven by a better than expected post-holiday season in January, with e-commerce offerings faring well and a strong performance in its U.S. domestic package segment.
UPS stock is currently trading at $86.56 per share, down nearly $5 since trading activity kicked off today.
“It is rare that UPS has to warn the Street that they will not hit their previous earnings guidance,” said Jerry Hempstead, president of Hempstead Consulting. “The Street does not like surprises, and this warning coming so close to the earnings announcement is designed to allow the Wall Street analysts to adjust their models. UPS for the most part is reiterating the same global story as FedEx did in their last earnings announcement.”

On June 18, FedEx reported fiscal 2013 fourth quarter net income at $303 million was down 45 percent year-over-year from $550 million. Quarterly revenue of $11.4 billion was up 3.5 percent from last year’s $11 billion, and operating income at $502 million was down 41 percent from $856 million. Quarterly operating margin—at 4.4 percent—was down from 7.8 percent a year ago.

In that earnings announcement FedEx cited “tepid economic growth and customer preference for less costly international shipping services” adding that near-term challenges remain.

Hempstead explained that with UPS’s admitting that some volumes may have been lost as a result of the labor negotiations going as long as they did make it reasonable to expect that the lost volume will most likely stay in the hands of whatever competitor absorbed it.

“Because both FedEx and UPS are so focused on pricing discipline and yield management I don’t sense that UPS will do anything to attempt to restore volumes by any concerted offensive sales effort,” he said. “I’m sure we will get much more color in the earnings announcement and conference call. This pre-announcement is just a shadow of what lies behind the curtain.”

UPS will release its second quarter earnings results on Tuesday, July 23.