Profits and sales were down for another quarter at UPS, but investors will look ahead to the upcoming holiday season to see if the world's largest shipping carrier — and the U.S. economy — are truly on the road to recovery.
Customers are shipping fewer and lighter packages, and in some cases going with slower and cheaper shipping options.
Rising fuel costs also could continue to affect UPS' business. While UPS can pass along fuel costs to its customers through a surcharge, changes to the fee lag the increase in fuel prices. And surcharges may push away cost-conscious customers.
"Our sense is unless fuel climbs another $15 a barrel, it's unlikely those surcharges will be too detrimental to demand," Chief Financial Officer Kurt Kuehn told analysts Thursday during a conference call.
UPS, based in Atlanta, posted net income for the three months ended Sept. 30 of $549 million, or 55 cents a share, a 43 percent decline compared with profit of $970 million, or 96 cents a share, a year ago.
Revenue dropped almost 15 percent to $11.2 billion from $13.1 billion a year ago.
Profit was ahead of Wall Street estimates, while the revenue figure matched expectations. Guidance for fourth-quarter earnings is also in line with analysts' forecasts.
UPS has been trying to keep costs down to help its bottom line as it weathers the economic downturn. It will reduce its 2009 capital expenditures to $1.7 billion, down $500 million from its initial budget.
Although there are signs of economic recovery, forecasters predict U.S. consumers will spend conservatively for the holidays this year, UPS said.
Consolidated volume for the July-September quarter totaled 927 million packages, down 2.4 percent from the same period in 2008.
Average daily volume and revenue per piece declined 3.9 percent and 11.3 percent, respectively. Industrial production is key to UPS seeing people ship heavier items, CEO Scott Davis said.
"It's got a long way to go to get back to the 2007 levels," Davis said.
UPS ended the quarter with $2.8 billion in cash and short-term investments.
Shares finished the trading day Thursday unchanged at $57.10.