Why United Parcel Service, Inc. (UPS) Earnings Are in Trouble

United Parcel Service, Inc. (NYSE:UPS) provides a wide range of services, ranging from lightning-fast overnight air delivery to slower ground transportation. With so much of its business dependent on macroeconomic trends, the sluggish global economy has had a big impact on not only how much it’s shipping but also the ways in which customers are choosing to get things where they want. Let’s take an early look at what’s been happening with United Parcel Service, Inc. (NYSE:UPS) over the past quarter and what we’re likely to see in its quarterly report.

Stats on UPS

Source: Yahoo! Finance.

How much will United Parcel Service, Inc. (NYSE:UPS) earnings get hit?
Analysts have had to reduce their views on United Parcel Service, Inc. (NYSE:UPS) earnings recently, with estimates for the June quarter having fallen by a dime per share and full-year 2013 calls getting cut by more than double that amount. The stock has actually held up quite nicely, rising more than 7% since mid-April.

Most of those analyst downgrades have come in the past week or so, in light of the company’s own preannouncement of its second-quarter earnings expectations. UPS projected earnings of $1.13 per share, below the $1.20 that analysts had expected prior to the announcement. Citing a slowing domestic economy, overcapacity in the air-freight market, and customers choosing lower-cost shipping options, UPS also cut its 2013 estimates to $4.65 to $4.85 per share.

Fortunately for UPS, the trend toward cheaper shipping has less of an impact on it than on rival FedEx Corporation (NYSE:FDX), which relies much more on high-speed options. In its most recent quarter, profits in FedEx Corporation (NYSE:FDX)’s express business dropped by two-thirds, and that pulled overall operating income down by 28%.

UPS has some other problems of its own. Although workers approved a new master union contract for its 235,000 employees that will run through 2018, freight employees rejected a proposed deal that their union said would have changed health-insurance coverage for 140,000 workers.