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Contributors: Douglas McIntyre Jon C. Ogg

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Tuesday, July 25, 2006

UPS Grounding the Transports


UPS (UPS) looks like the epitome of a technician’s story. The company said EPS was $0.97, up from $0.88 the year before but under the $1.00 consensus estimate; and revenues were $11.74 Billion, versus $11.6 billion estimates. The shares are taking more than a 10% haircut (or scalping) after the company said international operations and 1 few operating days in this quarter would hurt operations by $0.04 to $0.05 off of EPS.

Merrill Lynch has cut the stock to a Sell, while Lehman is lightly defending the reaction to the stock. UPS is trading down 13.1% at $69.45, which now puts it close to the bottom of a very long-term trading band of $67 to $82 for most of the last two and a half years.

This is impacting all aspects of transportation shipping.

UPS’s arch-rival Fedex (FDX) is down almost 5% at $105.14.

The railroad play from this morning, Burlington Northern (BNI), actually beat estimates on the surface, but shares are down 6.3% at $65.40.

Trucking giant J.B.Hunt (JBHT) is down 2.2% at $21.33.

Forward Air (FWRD), which also reported earnings yesterday, is down 9.5% at $34.93.

Even the iShares Dow Jones Transportation Average (IYT) are down 3.1% at $79.37.

Also logistics and supply chain software vendor JDA Software (JDAS) shares are trading down 1% at $13.52 after the company beat lowered expectations and lowered forward expectations.

One of the other overall economic plays that is often a go-to name in the sector is Packaging Corp of America (PKG). It isn’t in transportation at all, but they are looked at as the proxy for all of the packaging materials in the US as they manufacture containerboard and corrugated packaging products. PKG already has its earnings behind it, and shares are actually Up 0.4% at $22.81.

There are numerous media reports noting that this signals a weaker economy and a broader slowdown. While this may be true, isn’t that what just about all of the economic numbers have been telling us?

Jon C. Ogg
July 25, 2006

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