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Wednesday, April 23, 2008

UPS: "Dramatic slowing in the U.S. economy"

by Calculated Risk on 4/23/2008 09:28:00 AM

From the UPS conference call: (hat tip Brian)

Chief Executive Scott Davis:

UPS's first quarter results illustrate the dramatic slowing in the U.S. economy. At our investor conference on March 12th, we told you that volume growth in January had been up 3%. But in the six weeks prior to the conference, it had been negative. We also said if these trends persisted through March, we would not achieve the earnings guidance we had provided for the quarter. [The] trends did continue. Many have become sharply more negative in the last two months. ... The great unknowns are the severity and the duration of the current economic slowdown. Many of our customers have tightened their belts resulting in a shift away from our premium air products to ground shipments.
emphasis added
Chief Financial Officer Kurt Kuehn:
These results reflected a noticeable tradedown in service levels from express to saver, saver to deferred, and deferred to ground. As customers worked hard to reduce their costs. Tradedown was evident across all customer sectors but was most prevalent in retail. This is a tell tale sign of a progressively worsening economic environment. In addition, the timing of Easter had a negative impact on average daily volume.
CFO: UPS Cutting investment and spending:
As Scott mentioned, we have put an action plan in place to address the impact of economic slowing on our U.S. business. We will, one, use the expansiveness of our service portfolio to help our customers navigate through these challenging times. Two, exercise discipline with respect to investment, supporting only those projects that are essential. And three, remain diligent in managing variable and semi-variable costs. With regard to the last point, we have a number of initiatives in place. We are restricting hiring, except in the sales arena. We are stopping all non-critical projects. And limiting discretionary spending including business travel, relocations and consulting services.
Turning now to our outlook for the second quarter and the rest of the year. At this point, we see no immediate signs of economic improvement. ... On the international front, cross border trade remains robust, despite pockets of economic slowing.
Q&A on internation shipments:
Analyst: Soes the 12 to 15% goal for international, does that suggest that we're not going to see a slowdown in that arena or is that consistent with kind of a decoupling where the brunt of recession is felt here in the U.S. and not beyond.

UPS: We're seeing certainly changing trade flows and U.S. imports are slowing, but at the same time, U.S. exports are increasing. Asia to the U.S. is perhaps not as robust as it was but Asia to Europe remains robust.