UPS earnings hit by economic woes

Global - UPS posted a 21% drop in earnings for the second quarter of the year, as it struggled with rising fuel costs and a sluggish US economy.

UPS said it drew a quarterly net income of US$873 million, or 85 cents a share, compared with US$1.1 billion, or US$1.04 a share a year earlier. The decline was blamed on the 67% increase in fuel costs and a stagnant US economy.

It posted consolidated revenue of US$13 billion compared to US$12.19 billion a year earlier while operating profit grew to US$1.45 billion from US$1.77 billion.

The company's supply chain and freight arm posted US$2.34 billion revenue for the second quarter, up from US$2.11 billion in the same quarter a year earlier. Operating profits were also up in the quarter, reaching US$148 million from US$98 million in 2007. The growth was boosted by a continued strong performance in the forwarding and logistics business, which grew 7.2%. Shipments however, declined 2.3% as a consequence of the stagnant US economy.

"Slow U.S. economic activity and fuel price increases hit us and our customers during the quarter," said Kurt Kuehn, UPS's CFO. "Even though economists do not predict a recovery until 2009, we anticipate that the second half of 2008 will generate modestly better results than the first half, assuming business conditions do not worsen."

The company predicts earnings-per-share for 2008 in the range of US$3.50 - US$3.70. This translates to a range of US$1.78 - US$1.98 in the second half compared to US$1.72 in the first half.

Kuehne pointed out that comparisons to last year's results would be more difficult in the third quarter and moderate in the fourth.

"We are taking the necessary steps to control costs, add value for customers and grow our business while adjusting to the realities of today's challenging environment," he said.