UPS today warned its Q2 profits will be lower than expected and cut its financial forecast for2013 due to a mix of weak US economic growth, customer downtrading and supply-side
overcapacity.The US package giant announced that it now expects diluted earnings per share (EPS) for thesecond quarter ending June 30, 2013, to be $1.13. Analysts had on average predicted $1.20 pershare. The company will release its Q2 results on July 23.
Similarly, the company reduced guidance of its 2013 full-year adjusted diluted EPS to a range of$4.65 to $4.85. This is 3 – 7% higher than 2012 results but analysts had expected EPS of $4.98,according to news agencies.
Explaining the reasons for lower Q2 profits, UPS pointed to overcapacity in the global airfreight market, increasing customer preference for lower-yielding shipping solutions and a slowingUS industrial economy which had driven revenue and operating profit below expectations. Inaddition, UPS said it experienced some slowing in package volume growth as a result of labournegotiations.
“We expect the second quarter market trends to persist and UPS is adapting to meet theseconditions,” said CFO Kurt Kuehn. “Despite downward revisions to economic forecasts for the secondhalf of the year, we anticipate solid profit growth. However, we are reducing guidance for 2013adjusted diluted EPS to a range of $4.65 to $4.85, a 3 – 7% increase over last year.”
In the first quarter of 2013, UPS improved overall operating profits slightly due to B2C packagegrowth in the USA. This outweighed weaker international package results as customers moved tocheaper and slower ‘non-premium’ worldwide delivery services, resulting in a 2.5% fall in exportyields.
The UPS announcement follows the recent weak results from rival FedEx for the March – May 2013fourth quarter, which covers two-thirds of UPS’ April – June second quarter. FedEx’s Q4 profitsdropped back as express demand weakened significantly, with customers switching from priority toeconomy delivery services.
However, the Memphis-based company predicted EPS growth of 7-13% for the June 2013 – May 2014financial year, based on expected US GDP growth of 2.3%, world GDP growth of 2.7% and fuel pricesin line with the current market outlook.
