Incidentally, they also froze promotions.
By Mary Jane Credeur
Feb. 3 (Bloomberg) -- United Parcel Service Inc., the world’s largest package-delivery company, said it’s freezing management salaries and suspending retirement contributions after U.S. volume plunged the most in nine years.
The shares rose 6.1 percent on investor optimism that this and other moves such as reducing some flights for air packages will allow UPS to control expenses, said Art Hatfield, an analyst at Morgan Keegan & Co. in Memphis, Tennessee, who rates the shares “market perform.”
UPS’s domestic shipments, which typically mirror U.S. gross domestic product, dropped 3.9 percent in the fourth quarter, the Atlanta-based company said today in a statement. That was the biggest decrease since the company’s initial public offering in 1999 as businesses and consumers spent less.
“It’s a pretty bad environment, but UPS is managing through it for the long term,” Hatfield said. “The fourth quarter was tough and the current quarter is going to be tough, but we may start to see some small improvements from there.”
UPS said volume in the U.S. will fall by 3 percent to 5 percent in the current quarter, and that the economic contraction will probably be worse than it was in the last three months of 2008 as businesses work through built-up inventory.
The package shipper predicted earnings of 52 cents to 68 cents a share in the current period, which missed the 69-cent average estimate of 11 analysts surveyed by Bloomberg.
Stock Gains
UPS climbed $2.58 to $45 at 4:03 p.m. in New York Stock Exchange composite trading. The percentage gain was the most since Nov. 21.
Fourth-quarter profit was $254 million, or 25 cents a share, compared with a net loss of $2.64 billion, or $2.52, a year earlier because of costs to withdraw from the Central States pension plan. Revenue dropped 5.2 percent to $12.7 billion.
Excluding $575 million in goodwill expenses for its freight unit, UPS said profit was 83 cents a share, which trailed the 86-cent average estimate of 15 analysts surveyed by Bloomberg.
UPS said U.S. overnight air shipments, one of its most profitable services, plunged 9.1 percent while ground volumes declined 1.7 percent as some customers switched to this less- expensive option. International package volume decreased 8 percent.
The company said it was suspending matches to employees’ 401(k) retirement accounts. The company didn’t make changes to its defined benefit pension plans.
‘Tough Decisions’
The pay freeze will affect 30,000 managers, spokesman Norman Black said, or about 7 percent of the company’s global workforce of 425,000.
“The severe decline in economic activity around the world resulted in sharply lower package and freight volumes for UPS,” Chief Executive Officer Scott Davis said in the statement. “We’re making the tough decisions necessary to adapt our enterprise to today’s realities.”
Chief Financial Officer Kurt Kuehn said the company may be facing its most difficult year since being founded in 1907.
Economists surveyed by Bloomberg expect gross domestic product to fall 3 percent in the current quarter. It contracted 3.8 percent in the fourth quarter, the most since 1982, the Commerce Department said on Jan. 30. Excluding a buildup of unsold goods, the drop was 5.1 percent last quarter.
Domestic volume will probably fall for the full year, Kuehn said today in an interview. He declined to give a specific projection.
Cost Cutting
“The pace of the economic recovery will be driving that,” Kuehn said. “We might have some stabilization” in volumes toward the end of the year.
To lower costs, UPS has moved some sorting of overnight packages to its main hub in Louisville, Kentucky, instead of smaller centers in Dallas and Columbia, South Carolina.
Total flight time declined 5 percent in the fourth quarter, Kuehn said, and the company plans to trim more flights from its schedule this year.
UPS has several internal groups of employees looking for ways to save more money by making changes such as improving efficiencies at sorting facilities or investing in technology that will lower costs, he said.
“We’re challenging what we’ve done in the past,” Kuehn said. “Do we modify it? Can we improve it?”
UPS controls about 56 percent of the U.S. package-delivery market, followed by FedEx with about 30 percent and the U.S. Postal Service with about 13 percent, according to SJ Consulting Group Inc. in Sewickley, Pennsylvania.
To contact the reporter on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net.
Last Updated: February 3, 2009 16:19 EST
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