UPS Expected To Report Steady 2Q Growth; Pricing An Issue

NEW YORK (AP)--United Parcel Service Inc. (UPS) reports earnings for the second quarter on Tuesday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: UPS, the world's largest shipping carrier, first began as a messenger service in 1907. It had 2006 revenue of $42.6 billion and employs 407, 200 people worldwide.

In late May, UPS unveiled a fleet of 50 new hybrid electric delivery trucks aimed to reduce fuel costs and pollution.

Also during the quarter, the company continued to integrate its Menlo Worldwide Forwarding and Overnite acquisitions.

Contract negotiations began with the Teamsters union during the quarter. The current contract expires July 31.

BY THE NUMBERS: UPS expects a second-quarter profit of $1 to $1.05 per share, compared with earnings of 97 cents per share. Analysts expect profit of $1.03 per share, according to a poll by Thomson Financial.

ANALYST TAKE: Stifel Nicolaus analyst John Larkin said growth internationally, as well as in the supply chain and freight units, should add upside to the already improving domestic shipping business.

New technologies should help reduce labor costs, Larkin said, although the rollout of the company's Package Flow technology "was not as smooth as expected."

Additionally, the combination of less-than-truckload services along with parcel and express services could drive some incremental growth, the analyst said.

But a major theme for the second quarter will likely be competition, Larkin said, as the fight for market share grows more fierce in domestic ground shipping, and UPS seems to have settled for some less-attractive pricing to maintain its hold over chief competitor FedEx Corp. (FDX) and DHL.

Larkin rates UPS "Hold."

WHAT'S AHEAD: The Teamsters union contract seems unlikely to settle before the end of 2007, Larkin said, and may cause disruptions later in the year.

Acquisitions are likely on the "back burner" as the company focuses on the improvement of its supply chain solutions business, he added.

However, Larkin said the turnaround of the supply chain unit could provide some benefit to full-year earnings per share estimates.

Overall, the company's balance sheet remains strong, he added, which should lead to increased dividends, share repurchases, and possible acquisitions.

STOCK PERFORMANCE: Shares of UPS gained about 4% during the quarter ended June 29, and have decreased less than 1% this year. The shares recently traded at $ 75.04, up 3 cents.