The world’s largest package carrier, United Parcel Service Inc. (UPS), delivered lackluster earnings today, shedding 6% of its stock value after it cut its second-quarter profit outlook due to high fuel costs and a weak U.S. economy.
Sound familiar? It should.
Last week, UPS’s chief competitor, FedEx Corp (FDX), beat them to the chase by blaming high fuel prices and the weak economy for its lackluster results (see, “FedEx Corp (FDX): Still on Time.“)
As I stated just last week, I have a lot of faith in FedEx. It’s a well-run company that making significant investments in more fuel-efficient aircraft and in growing its international business.
I can’t say the same for UPS.
UPS: Expect a Bumpy Road Ahead
I know a driver for UPS, and he said that not only are high gas prices killing the company, but so is a decrease in shipping volume. He was even noticing this decrease on his daily routes.
Of course, I told him not to worry, that UPS is a solid company, and that in the long run, they’ll be OK.
This, of course, is more or less the truth. But I wasn’t about to tell him that it’s the short-term that worries analysts, employees and investors alike. UPS has to tackle some serious issues including decreasing international shipping volumes which are key to the company’s growth.
The good news is that analyst John Barnes of BB&T Capital Markets, says fuel prices may have reached a tipping point. Yes, this is a glimmer of good news, however in the shipping industry, oil prices rule supreme; and with the Fed unlikely to cut interest rates in the near term, I believe they will stay near the top end of the recent range.
So what should an investor do these days? Sit on the sidelines until big brown can regain international ground.
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