UPS, FedEx declines reflect US downturn

FedEx's US shipments fell 2 percent in the first quarter. The company expects "limited earnings growth" this year. (Daniel Acker/Bloomberg News/File 2007)

ATLANTA - Declining shipments at United Parcel Service Inc. and FedEx Corp., which together deliver 80 percent of packages in the United States, show the economy is in a recession and unlikely to rebound this year.

UPS, whose domestic volume has outperformed the gross domestic product for almost a century until last year, said April 8 that deliveries dropped in the first quarter. UPS also said earnings for the three months through March will miss its previous projection by as much as 7.4 percent, just the third time the company has made a new forecast that was below an earlier one.

FedEx's US shipments dropped 2 percent last quarter, and the company said last month it would have "limited earnings growth" this year because of the slowing economy. Both companies are also struggling with soaring jet fuel, gasoline, and diesel costs.

"This is what a recession feels like," said Steven Marco, who manages $800 million including UPS shares at Marco Investment Management LLC in Atlanta. "The trucks are not as full as they used to be."

UPS's profit excluding one-time items might drop 12 percent to $902.9 million for the first-quarter, according to the average estimate of six analysts surveyed by Bloomberg. The company is scheduled to report earnings today. Chief executive Scott Davis declined to comment because of the "quiet period," a spokesman said.

UPS chief financial officer Kurt Kuehn said at a March 12 investor presentation that 2008 will be "challenging" because of the cooling economy and that the "downside risks have increased" for volumes.

FedEx's profit for the fourth quarter ending May 31 might drop 14 percent to $525.1 million, according to the average of five estimates in a Bloomberg survey. Chief financial officer Alan Graf said last month that lower demand for express shipments in the United States will continue into fiscal 2009.

UPS and FedEx's customers include Ford Motor Co., Dell Inc., and Amazon.com Inc., as well as banks and law firms. That gives them exposure to almost all industries, making them "coincident indicators" of economic health, says Rajeev Dhawan, director of the economic forecasting center at Georgia State University in Atlanta.

Drops in US shipments, coupled with job losses and tighter bank lending standards, signal that the economy probably entered a recession in November or December, and may have a period of no growth for 9 or 10 months, Dhawan said.