UPS As The Leading Indicator For Recovery?

Posted on TheStreet.com : As UPS Goes, So Goes the Economy

• UPS says the economy is bad and getting worse, at least during the current quarter.
  
  We're going to presume the economy keeps getting worse," said CEO Scott Davis, on an earnings conference call. "Frankly, I think you will see the biggest drop in the first quarter of '09. The second quarter will be negative, but not quite as bad."
  
  CFO Kurt Kuehn said conditions worsened from October to November, then stabilized during the pre-Christmas season when volume was close to flat. But in the first quarter, he said, "we do think trends will turn back closer to October and November than (to) what we had in December."
  
  Once viewed as a leading indicator, UPS has become a proxy for the economy in real time, with 6% of the U.S. GDP and 2% of the world's GDP in its system at any given moment.
  
  As for bright spots, UPS has a viable business, $1 billion in cash, strong cash flow, reduced fuel surcharges, plans to reduce costs and a potential benefit from the shutdown of DHL's domestic operation. It will continue to buy back shares this year, albeit at a slower pace, and will look for acquisitions at distressed prices.
  
  Also, so far, the company has seen little of the benefits from efforts to consolidate operating districts, reduce flights, eliminate some package-handling operations, freeze management salaries and suspend its 401(k) match.
  
  "The first quarter will be weak with slight improvements later in the year as initiatives take hold," Kuehn said. UPS shares traded Tuesday morning at $45.45, up $3.03 or about 7%.

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