UPS 2nd quarter profits tumble

UPS 2nd quarter profits tumble UPS said Tuesday that second quarter operating profits slid to
$1.45 billion from $1.77 billion a year ago.
      The express package delivery company said results were negatively impacted by the downturn in the U.S. economy, a 67 percent increase in fuel costs, and customer switches to less expensive modes, but that its supply chain and domestic heavyweight truck segments achieved significant profit gains.
      FedEx recently reported a $241 million net loss in its most recent quarter, including effects from the write-down in value of its Kinko’s unit.
      Weakness in UPS's U.S. domestic delivery business contributed heavily to a fall in year-over-year operating margins from 14.5 percent to 11.2 percent on flat volume and overall revenue increase to $13 billion from $12.2 billion.
      Operating profit for the domestic package segment dropped to $900 million from $1.2 billion, with margins falling from 15.7 percent to
11.7 percent. UPS attributed a 1.3 percent volume decline and a pronounced shift away from premium products — 6.1 percent decline for Next Day Air and 2.3 percent for deferred air — to the wobbly U.S. economy and slowdown in consumer spending. UPS charges a fuel surcharge to help cover its expenses, but the billing cycle means many of those receipts aren’t collected until after the quarter ends.
      UPS’s international package segment also experienced a $70 million drop in operating profit to $407 million due to higher fuel costs, declining U.S. import volume and slower growth in premium products, the Atlanta-based company said.
      It said export volumes helped international volume growth to 1.93 million packages per day from 1.8 million per day, but that export growth slowed significantly as the quarter progressed.
      UPS said its supply chain and freight segment increased profit to
$148 million from $98 million, and margins up 50 percent to 6.3 percent from 4.6 percent, on the strength of its forwarding and logistics activities.
      UPS Freight, the company’s less-than-truckload division, had a
7.2 percent increase in revenue, but shipments declined 2.3 percent.   
The U.S. LTL is struggling with declining tonnage and profits due to the weak economy and fierce competition. UPS did not break out earnings for Supply Chain and Freight.
      “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. Therefore, we are providing earnings-per-share guidance for
2008 within a range of $3.50 to $3.70. This translates to a range of
$1.78-to-$1.98 for the second half compared to $1.72 for the first half,” Chief Financial Officer Kurt Kuehn said. ' Eric Kulisch