UPS and the Economy

                Fragile European economy dampens CEOs’ outlook

Deteriorating financial conditions in Europe are weighing down companies’ profits. And hope of salvation from other regions – such as China, Brazil and the United States – is starting to dim as those economies weaken.

That’s the message from this week’s parade of second-quarter earnings from some of the world’s largest companies.

United Parcel Service Inc.

– WHY IT’S IMPORTANT: UPS moves millions of packages between consumers and businesses every day – everything from flowers to car parts and computer chips.

– WHAT THE NUMBERS SAID: Second-quarter net income rose just 2 percent to $1.12 billion, while revenue improved by little more than 1 percent. International revenue fell, while Internet shoppers kept UPS trucks busy in the U.S. UPS sees the global economy getting worse before it gets better. That’s why it cut its full-year earnings forecast to $4.50 to $4.70 per share from $4.75 to $5 per share previously.

– WHAT THE EARNINGS SAID ABOUT THE ECONOMY: The world’s largest package delivery company has thrived domestically, but now it’s more pessimistic about U.S. growth than many economists. UPS expects the U.S. economy, by far the world’s largest, will grow just 1 percent this year. The company cited slower growth at U.S. service companies, lower retail sales and still-high unemployment as signs that the U.S. isn’t holding up as well as UPS anticipated just three months ago. And shipments out of Asia, which grew by double-digits two years ago, have shrunk as Europe’s economy founders.

– WHAT THE EXPERTS SAID: Several analysts reduced their outlooks for the company, saying the quarterly results were somewhat disappointing. Even so, they think UPS should be able to grow in a weaker global economy as it saves money through reduced service out of Asia.

– THE QUOTE: “Economies around the world are showing signs of weakening and our customers are increasingly nervous,” Chairman and CEO Scott Davis said in a conference call with analysts. He added: “I wouldn’t say we’re pessimistic about the future. We’re just a lot more uncertain about how much the economy will grow.”