UPS Shares Tumble After An Ugly Earnings Report

Ups package deliveryREUTERS/John Sommers IIUnited Parcel Service employee Ramona Cranmer works to sort packages at the UPS Worldport All Points International Hub during the peak delivery day in Louisville, Kentucky, December 17, 2013.

UPS just reported its Q2 financial results, and the numbers look a bit light.

Earnings came in at $US1.21 per share, which was below analysts’ estimates for $US1.25.

Management cut is full year earnings guidance to $US4.90 to $US5.00 from a previous range of $US5.05 to $US5.30. This is worse than the $US5.09 expected by analysts.

UPS shares are down 2.7% in premarket trading.

What About The Economy?

Because UPS is a global provider of package delivery, it’s considered a decent indicator of economic activity.

On that front, things don’t look too bad.

U.S. domestic daily package volume climbed 7.4% while international export shipments jumped 9.1%.

“The strong revenue growth this quarter is evidence that our portfolio resonates with customers, with more choosing UPS as their logistics provider,” said CEO Scott Davis.

Q2 revenue increased by 5.6% to $US14.26 billion, which was higher than the $US14.10 billion expected.

Investing For The Future

Management is blaming is blaming the profit shortfall on higher costs, which they argue will pay for itself in the future.

“The company announced plans to increase 2014 operating expense for capacity and peak related projects to a total of $US175 million,” the company said.

“[W]e are making investments in new capabilities and network capacity to ensure we meet customer expectations,” said CFO Kurt Kuehn. “These initiatives will increase operating expense this year, but will provide financial benefits for years to come.”

Last winter, UPS missed some Christmas package deliveries due to low lack of capacity. Hopefully, that won’t happen this yea.

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