UPS sees profit hit by weak economy, short of estimates

A UPS driver loads packages to be delivered onto a dolly from a United Parcel Service (UPS) all-electric vehicle in Sacramento, California, U.S.,
Ken James | Bloomberg | Getty Images
A UPS driver loads packages to be delivered onto a dolly from a United Parcel Service (UPS) all-electric vehicle in Sacramento, California, U.S.,

United Parcel Service,the world's No. 1 package delivery company, on Friday forecast second-quarter profit below Wall Street expectations, signaling that the global economic recovery still has a ways to go.

The shipping and delivery company and smaller rival FedEx Corp are considered economic bellwethers because of the high volume of goods they move around the world.

UPS shares were down 5 percent in morning trading, while FedEx fell 1.6 percent. The S&P 500 Index was off 0.05 percent. (Get the latest quote on UPS here.)

UPS blamed the weak earnings forecast on broad economic problems such as overcapacity in the global air freight market, increasing customer preference for shipping solutions that may take longer but are cheaper, and a slowing U.S. industrial economy.

(Read More: UPS/FedEx: Inside the Package Wars)

UPS Outlook Disappointing
UPS Outlook Disappointing   

"They had a strong start to the year, so this is an indication that the global recovery remains choppy, for certain," analyst Joshua Herrity of New York-based Telsey Advisory Group said.

"A lot of companies are being smarter about managing their supply chain and deferring their shipping wherever they can to save money, so whenever they can put things on water, they are," Herrity said.

In April UPS said its international package business would drive results in the near term and that it expected the small-package market to grow faster than the U.S. economy this year.

UPS's stronger North American domestic ground network puts it in a better position than FedEx, which focuses more on international air shipments.

(Read More: A Weak US Economy Means Fewer Babies—At Least for Now...)

FedEx said in June it was raising shipping rates and cutting jobs and costs.

UPS said on Friday it expected second-quarter earnings of $1.13 per share. Analysts on average expected $1.20, according to Thomson Reuters I/B/E/S.

UPS cut its full-year earnings forecast to $4.65-$4.85 per share from $4.80-$5.06.

The company said its package volume growth had slowed due to labor issues. It said it had extended an agreement with the International Brotherhood of Teamsters that covers its domestic small-package employees.

Herrity said that was a short-term problem for the company and that Wall Street was not worried about the issue affecting UPS in a big way.

"We think the risk is very very remote at this point, but there is a chance customers had shifted away from UPS for the short term till the labor issues are resolved," he said.

UPS is scheduled to report second-quarter results on July 23.