UPS Throws a Monkey Wrench

 | Jul 12, 2013 | 11:49 AM EDT  | Comments
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Will the real economy please stand up, please stand up?

I can't tell you how many people I know who were using United Parcel Service (UPS) as the giant chit in the recovery play. It made so much sense. We know that the U.S. is getting stronger. Europe seems to have bottomed. How bad could Asia be? We have so much Internet business. We know that this is one of the best-run transports in a totally transport-driven leg of the bull market. Plus, let's face it, since FedEx (FDX) is all the way back to almost $105, why not play the laggard?

What can I say? How wrong could investors and traders be? A preannouncement of all things. A darned preannounced shortfall. And a bad one. So $4.98 in earnings per share for the year goes to $4.65-$4.85. Or more like it, $5 and change -- the whisper -- is going to be perhaps 10% too high. You want to get really down and dirty ? The reasons for the shortfall read like a disaster roll call:

  1. Too much capacity in the industry -- this, even though we have had FedEx take out a ton of capacity.
  2. Customer preference for lower-yielding shipping solutions, meaning that people are feeling less rich and opting for slower shipments. I mean, what's the hurry? It will get their eventually. Where is the urgency in the economy? Don't look at UPS.
  3. And worst of all, a slowing U.S. industrial economy. Huh? I thought it was accelerating.

Talk about a triple whammy. What does it say? To me it says that everything you have heard about a strengthening economy must be put on hold, because perhaps rates went up too much, the consumer confidence figures aren't representative, and there's been a big decline around the globe -- this is a global economy that has affected perhaps the most important commerce bellwether, save FedEx, in the world.

Now, before we jump to conclusions, we do know that there are some parts of the economy -- at least the U.S. economy -- that fly in the face of this preannouncement. Auto sales are very strong. You don't get a big increase in the price of gasoline if there isn't a pickup of some degree in business. We know there is job growth.

We also know that Amazon (AMZN), at least in the snapshot we got today from Goldman Sachs, is doing exceedingly well.

Plus we just had terrific numbers from The Gap (GPS) and Costco (COST) -- two giant retailers that can't be ignored.

Still, UPS' number can't be ignored, and it is a solemn reminder that when you don't have small-business growth, when you don't have corporate creation, when you don't have a lot of speculative lending that helps start-up business, you get a UPS. The real takeaway here is brutal: Those of you who are playing a rebound in the U.S. economy, don't bet that you can play it with just anything. You may be buying the next UPS.

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