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UPS sees global economy getting worse

Revenue in UPS' supply chain and freight business fell 1.7 percent. That segment includes both UPS' long haul trucking business and a unit that helps manufacturers streamline and make their businesses more efficient.

By SAMANTHA BOMKAMP
The Associated Press

7/25/2012

NEW YORK — UPS expects the global economy to get worse before it gets better. Again.

The world's largest package delivery company is more pessimistic about U.S. growth than many economists. It predicts global trade will grow even slower than the world's economies — a trend not seen since the recession. It's making cuts in its business and reducing its earnings projections.

UPS on Tuesday lowered its forecast for all of 2012 and said its third-quarter earnings will fall below last year's results.

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Customers are worried about the global economy weakening in the second half of the year, the company said. Their skittishness was also felt in the second quarter, where UPS missed analysts' expectations for both earnings and revenue. The stock fell more than 4 percent in midday trading.

"Economies around the world are showing signs of weakening and our customers are increasingly nervous," Chairman and CEO Scott Davis said in a conference call with analysts.

That sentiment, along with similar comments from chemical maker DuPont, weighed on investors, who are already nervous about the global economy. The S&P 500 index dropped 0.5 percent in the morning. UPS is a closely watched barometer of broader economic health because it moves millions of packages between consumers and businesses every day.

UPS said it expects the U.S. economy, by far the world's largest, will grow just 1 percent this year. The company cited stalling growth from U.S. service companies, lower retail sales and still-high unemployment as signals that the U.S. isn't holding up as well as UPS anticipated just three months ago.

Although economists have been cutting their projections, estimates for U.S. economic growth this year are still in a range of about 1.8 percent to 2 percent.

This marks the third straight year growth has stalled at mid-year after getting off to a promising start.

UPS cut its full-year earnings forecast by 25 cents per share to $4.50 to $4.75. Wall Street had been expecting earnings of $4.82, according to FactSet.

For the three months ended in June, UPS said net income rose 2 percent to $1.12 billion, or $1.15 per share, compared with $1.09 billion, or $1.09 per share, a year earlier. Analysts expected $1.17 per share according to FactSet.

Revenue for the Atlanta company rose 1.2 percent to $13.35 billion.

In the U.S., revenue rose 4 percent from a year earlier, driven by a higher volume of packages. UPS said the increase was mostly due to a higher number of packages ordered from Internet retailers.

Overseas, revenue fell 4 percent on lower exports from Asia and falling revenue per package, an indication of lower prices.

Revenue in UPS' supply chain and freight business fell 1.7 percent. That segment includes both UPS' long haul trucking business and a unit that helps manufacturers streamline and make their businesses more efficient.

A month ago, rival FedEx Corp. warned that slow global economic growth will crimp its earnings over the next 12 months.

UPS said Tuesday that it's cutting some flights out of Asia and reducing the frequency of others over the next several quarters to counter slowing demand. That amounts to a 10 percent cut in capacity on Asia flights, on top of a previous 10 percent reduction.

The company warned it would take additional actions, if necessary, to bolster its financial results.

UPS does see one bright spot ahead: it believes fourth-quarter earnings will be buoyed by major technology product launches ahead of the busy holiday season. Apple Inc. is expected to release a new version of the iPhone in the fall.

Kevin Jones of The Trucker staff can be reached for comment at kevinj@thetrucker.com.

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