UPS "encouraged" by signs of economic recovery

UPS Inc., the nation's largest transportation company, posted third-quarter results Oct. 22 that met or modestly exceeded analyst consensus estimates. In addition, top UPS executives, for the first time in months, expressed optimism over the outlook for the economy and demand trends for the company.

The Atlanta-based company reported an operating profit of $929 million on revenue of $11.15 billion, well below the results in 2008's third quarter. But its earnings per share of 55 cents came in above Wall Street's consensus of 52 cents per share and at the high end of UPS's own estimates.

"I'm encouraged by the signs of economic recovery that are becoming apparent, although we still have a long way to go," Scott Davis, UPS's chairman and CEO, said in a statement. CFO Kurt Kuehn added that while the third quarter began the same way the weak second quarter ended, the company saw "profitability improvement due to effective cost management and firming volume later in the quarter."

Analysts at JPMorgan Chase lauded UPS's focus on cost control, noting the company's 2009 capital spending of $1.7 billion is well below an original 2009 budget of $2.2 billion and below the $2.6 billion to $3 billion spent annually in the past three years. JPM analysts noted an improvement in UPS's domestic air volumes but pointed to weakness in its core domestic ground parcel business.

Analysts at Milwaukee-based Robert W. Baird noted improvement in international volumes, which rose 4 percent from year-ago levels. Baird analysts also noted the continued weakness in UPS's domestic ground volumes, but said ground volumes exhibited "modest seasonality" through the quarter. The seasonal improvements became more pronounced toward the end of the quarter, according to the Baird analysts.