Tuesday, July 22, 2008

UPS takes a hit from soaring fuel, weak U.S. economy

United Parcel Service on Tuesday reported an in-line profit that was hit by fuel costs and a weak U.S. economy, but the package delivery company's shares rose more than 3 percent as analysts said it was performing well despite multiple challenges.

UPS, considered a bellwether of U.S. economic health like its main rival FedEx Corp, said it expected the second half of the year to generate "modestly better results" than in the first half.

"In the short term, UPS faces tremendous headwinds in terms of profits thanks to fuel and the U.S. economy, but they are managing through it pretty well," said David Sandell, a portfolio manager at New York-based Leeb Capital Management, which manages assets of around $170 million. Leeb sold off its UPS shares last year but monitors the stock closely.

Sandell said UPS shares represent good value long term and when asked if it was time to invest in them, he said: "It's getting close to that point."
Fuel prices moving forward will play a crucial role in the recovery prospects of both the U.S. economy and UPS, he added.

Atlanta-based UPS reported quarterly net income of $873 million, or 85 cents per share, compared with $1.10 billion, or $1.04, a year earlier.
Analysts had on average expected earnings per share for the quarter of 85 cents, according to Reuters Estimates.

"Slow U.S. economic activity and fuel price increases hit us and our customers during the quarter," Chief Financial Officer Kurt Kuehn said in a statement.

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