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VOL. 125 | NO. 22 | Wednesday, February 3, 2010

UPS Earnings Mostly Bright After Economic Turbulence

By Eric Smith

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A UPS driver makes a delivery in Georgia. The FedEx rival has reported a spike in profit and a dip in revenue. Photo: John Bazemore/AP

UPS may not be based in Memphis – its hometown is Atlanta – but fourth quarter earnings from the world’s largest shipper should create as much buzz here as anywhere.

The company reported a fourth-quarter profit of $757 million, three times its profit from a year ago. It was the equivalent of 75 cents per share, compared to a profit of $254 million, or 25 cents per share, a year earlier. Revenue fell 2.5 percent to $12.38 billion from $12.70 billion.

Analysts polled by Thompson Reuters had expected an adjusted profit of 74 cents a share on revenue of $12.25 billion.

The company has a well-documented and increasingly intense rivalry with Memphis-based FedEx Corp., this city’s largest employer.

FedEx employs 30,000 people in Memphis while UPS employs 2,015. FedEx’s Super Hub is at Memphis International Airport while UPS’s Worldport isn’t too far away at Louisville International Airport in Kentucky. While FedEx is stronger on the air side, UPS dominates ground transportation.

But more than just competitive shipping giants, the two companies have been entangled in a lawsuit over television advertising and a disagreement over which national labor act should govern the companies. If UPS had its druthers, FedEx would be regulated under the National Labor Relations Act, which could pave the way for unionization there.

FedEx Express employees remain covered under the National Railway Labor Act, something that UPS – itself a union-heavy company under the National Labor Relations Act – has said is unfair.

Against the backdrop of those issues, UPS’ surprising fourth quarter earnings, released Tuesday, will surely resonate locally.

Dan Ortwerth, a FedEx and UPS analyst at Edward Jones, said UPS handled the economic difficulties of 2009 “extremely well.”

“A premium service company is always going to suffer in a recession and a transportation company is always going to suffer in a recession, and here you have both in one,” Ortwerth said. “So, yes, they suffered badly. I’m still very impressed with how they managed the situation, kept their financial health, took market share and positioned themselves for the recovery.”

Ortwerth said UPS and FedEx – based on its December earnings report – took advantage of the economic certainty overseas by expanding globally, with FedEx taking the lead in that regard.

He added that UPS’ earnings report in some ways was an answer to the way FedEx ended its most recent quarter.

“These are two excellent companies that manage their businesses very well,” Ortwerth said. “If anything, FedEx’s December report put UPS on notice, but (UPS) obviously answered the bell.”

UPS chairman and CEO Scott Davis was pleased with his company’s ability to answer that bell and turn in a healthy quarter.

“UPS ended 2009 on a high note by leveraging network changes implemented throughout the year and executing flawlessly during the peak holiday shipping period, which was stronger than we had anticipated,” Davis said in a release. “The company demonstrated its ability to manage effectively in changing market conditions. UPS has emerged from the worst recession in decades leaner, more focused and better positioned to take advantage of increased global trade.”

Davis, who credited the company’s stellar holiday season and international shipping for its Q4 success, went so far as to say that the worst of the economic slump has turned a corner.

“It looks like this recession is finally over,” he said to analysts during a post-earnings conference call.

UPS’ package volume rose 1.4 percent to 1.1 billion pieces during Q4, while the average volume per day remained steady at 17.3 million packages.

During the holiday shipping season, global volume exceeded 22 million packages in eight days, including two on which it exceeded 24 million packages, according to the Associated Press. UPS said it experienced more delivery volume than in 2008 on each of the seven days before Christmas.

Despite the positive report, Kurt Kuehn, UPS’ chief financial officer, said the outlook for 2010 remains guarded.

“Economic forecasts indicate gradual improvement as 2010 unfolds,” Kuehn said in a release. “The first quarter will be the most challenging of the year for UPS with profitability only slightly better than last year.”

Ortwerth said he maintains a positive outlook for FedEx and UPS “in 2010 and beyond.”

The Associated Press contributed to this report.

PROPERTY SALES 79 321 2,586
MORTGAGES 90 426 3,033
BUILDING PERMITS 153 796 6,864
BANKRUPTCIES 37 213 2,000