UPS profits fall by half

UPS has announced a 55 per cent drop in profits for the first quarter of this year, compared to a year ago. Net profits fell to US$401 million (£275.4 million) while net revenue fell 14 per cent from $12.7 billion to $10.9 billion.
“Economic indicators tell us recovery in the United States might begin late this year, but more likely not until 2010,” said UPS’ chief financial officer Kurt Kuehn. “So we expect the second quarter will be another difficult one.” He added that profit margins will “remain under pressure” throughout 2009.
“We’re in an environment where everyone’s looking for green shoots and hoping they’ll grow into trees,” he said. “We see very strong signs that the rate of decline is starting to moderate.”
Dan Ortwerth, of investment company Edward Jones, said “the results are miserable” with more to come. “People were getting ahead of themselves with expectations of recovery. We’re not there yet.”
However, he remained optimistic about the company’s chances of recovery. “This is a very strong company. And in a storm that’s what you want – a company that’s able to ride out the storm.”
UPS is now stepping up its cost-savings programme and wants to reduce expenditure by another $300 million a year with investment to be reduced by $200 million.
Part of this will possibly include cutting its pilot workforce by 10 per cent, although that remains a last resort. “One possibility is furloughs,” said UPS spokesman Mike Mangeot. “There are other options out there and we certainly want to explore as many as we can, but we have to be realistic about the business.
“Obviously because we are flying less we have more pilots than we need. Our analysis shows that number is 300.
“We went to the IPA and told them, ‘furloughs are really not in the UPS culture so can you help us come up with alternatives?’ We want to give due consideration to all options before we do anything,” he said.
It has already parked 44 DC-8 freighters leaving it with 218 aircraft down from 262.
UPS’s domestic business accounts for 61 per cent of 2008 revenue, while international is 22 per cent and freight only 17 per cent.