Investment Contrarians

UPS Delivers Frightening Forecast

By for Investment Contrarians |

UPS Delivers Frightening ForecastThere are many interesting points that can be taken from a quarterly corporate earnings report. I find it’s quite interesting to read the corporate earnings release from United Parcel Service, Inc. (NYSE/UPS), because its business is spread among so many sectors and nations around the world that it’s a good gauge of where the global economy currently is and what the company’s economic forecast holds for the future. Unfortunately, the latest economic forecast from UPS’s corporate earnings release was quite scary.

Compared to most economists, UPS is expecting weaker global trade within a poor economic forecast. Because of this weak economic forecast, UPS is undergoing reductions in its business and lowering guidance. Within its corporate earnings release, UPS states that customers are increasingly worried about the economy. This is causing other firms to ratchet down their own economic forecast models for the remainder of the year. For the second quarter, UPS did miss on both topline and corporate earnings expectations as a result of weakening demand by clients. UPS has an economic forecast for the American economy of just one percent. That is far below the economic forecast for many economists, as most have a range of 1.5% to two percent.

Within the corporate earnings release, one bright spot was higher shipments from online retailers. But this increase was not enough to offset the decrease in freight shipping, which is the method large businesses use when ordering products. Obviously, someone buying one book from an online retailer can’t match the revenue and corporate earnings that UPS gains from a manufacturer shipping 1,000 units.

Asian growth is slowing as well, and because of this, UPS is cutting flights and capacity to that region by approximately 10.0%. The company does cite one positive note for the end of the year when new product launches by firms like Apple Inc. (NASDAQ/AAPL) are scheduled; but I doubt this will be enough to offset the weakening economic forecast globally.

 

UPS stock market chart

Chart courtesy of www.StockCharts.com.

Following the poor corporate earnings release, the stock sold off significantly, landing at some support around its 200-day moving average. This is also the 38.2% interest level, using the Fibonacci calculation. While many might be tempted to step in to accumulate shares at a discount to recent price levels, I would urge caution. UPS’s corporate earnings release was littered with headwinds for its business and the global economy. With such a global slowdown, having a weak economic forecast below consensus indicates that the situation might be worse than many economists believe. If this is the case, there isn’t a short-term catalyst to drive the stock up. If anything, it might trend sideways or slightly down until the economic situation has stabilized globally. A reasonable approach would be to wait for any uptake in the economic forecast by UPS, or signs of some positive notions within their next corporate earnings release.

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  • Ahmed

    RE: RE: RE: RE: A bank is a good start. I have made money in all of the stupidest ways in the world. There is money in erntyvhieg you can imagine.Micro loans are an excellent way to make money. A tile setter who was doing tub surrounds for us at $700 using subway tiles told me if he had one of those big a$$ tile saws he could do a lot more. We bought it, he did more jobs, that he found, paid us, plus interest, and expanded what we could offer to our clients. So let's say it was $1000, he paid us back $1100 in six months, and we had a service that we could sell, and mark up. If you just look around there is money everywhere, and that's what makes this a great country. Software Engineer keeps talking about illegal immigrants, and Scotsman is talking about welfare, or maybe they are both talking about the same thing I can't keep track. The fact is that people come to this country because they are allowed to make money here. They may not have the right to work at McDonald's, but they are allowed to have a business. All they have to do is figure out how to pay the taxes. We allow foreign investment.Two women I know sell tamales for events in town. They compete with each other. One is out doing the other. Labor is by far the greatest asset we have right now. Really, who wants to work at McDonald's if they can make more money doing less work? Anyway it's the end of the month so I just thought i would throw that out there. Rate this comment: 0 0

  • grace

    The recent increase in postage that took a package from $17 to $24 has suceeded in discouraging me from purchasing from the USA so much.