Tuesday, February 1, 2011

UPS 4th quarter profit up 48% ... raises guidance ...

On Tuesday United Parcel Services Inc. (UPS) delivered a 48% rise in fourth-quarter profit and raised its forecast for record full-year earnings.  The largest domestic package delivery company also boosted its buyback program after making a substantial year-end pension contribution and flagged further expansion in emerging markets to challenge rivals such as FedEx Corp. (FDX), which had raised its own 2011 guidance in December.  UPS saw higher profit margins in domestic and international services despite the impact of poor weather, and boosted margins as it passed on higher fuel costs through surcharges. It plans to buy back around $2 billion in stock this year.

Scott Davis, chairman and chief executive, described the quarter as "extraordinary" on a post-earnings' call and pointed to improved consumer confidence and a slightly brighter employment picture.  Fourth-quarter earnings topped expectations and the forecast for per-share earnings this year of $4.12 to $4.35 compared with the consensus of $4.18. Revenue and margins are also expected to rise. Its shares were recently up 2.9% at $73.70 in pre-open trade, with FedEx up 2% at $92.09.

While this is very good news we will be watching to see how markets react here after UPS’s solid numbers.  If we are in a true corrective mode then after the initial wave of buying we would expect to see bids fade later in the trading session.  Lately good earnings news (such and Google and Amazon) have been sold into as traders and portfolio managers bought well in advance of these good earnings and have been using the strength on earnings reports to sell.   We will be looking to see if that trend still holds true again today.  If it does this would only further support the idea that in the near term the markets want to go down some.

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