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Five Things You Need to Know: UPS Seeing "Dramatic" Slowing in Economy


The consumer is definitely feeling it, according to UPS.


Kevin Depew's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. UPS Seeing "Dramatic" Slowing in Economy

United Parcel Service (UPS) said first-quarter shipments fell and the company cut its 2008 profit forecast, blaming the "dramatic" slowing in the U.S. economy. Additionally, the company said it is seeing no evidence of improvement.

"UPS's first quarter results illustrate the dramatic slowing in the US economy," UPS Vice Chairman and Chief Executive Officer D. Scott Davis said on this morning's call. Rather than offering an optimistic assessment of the economy, Davis noted that many indicators are pointing to a contraction in the US economy and that they have become sharply more negative in the last two months.

There was really little that was unexpected on the call. The company had already cut its first quarter forecast heading into today's call, and last year, despite posting record results in revenues and earnings per share led by its international segment, the company's U.S. profits actually declined.

But one thing we were listening for on the call were any comments on the business to consumer shipping trends. UPS Chief financial Officer Kurt Kuehn said business to consumer shipping growth remains much slower than it has been over the past couple of years. "The consumer is definitely feeling it and both in our direct-to-retail business volume and our direct B2C is showing the impact."

2. China Says YUM!

Today we were also interested in hearing from Yum! Brands (YUM) to track domestic demand in both the fast food (Taco Bell) and casual dining (Pizza Hut and KFC) categories. The company reported nice headline results, driven again this quarter by strong international businesses in China and through Yum! Restaurants International. But domestic demand continues to be problematic.

David Novak, Chairman, President and Chief Executive Officer, noted the company had to weather substantial commodity inflation this quarter, and that same-store sales grew by 3%, reversing last year's decline. But operating profit was down 5%.

"Given the macroenvironment and an economy we describe as value-driven for 2008, Taco Bell is clearly our best positioned U.S. brand," Novak said. "KFC and Pizza Hut are both more skewed to dinner occasions and higher guest checks. As a result, they are more susceptible to the pressures currently impacting consumer discretionary spending."

And so the theme of contracting consumer spending continues apace.

3. Preview

Another consumer-related stock we want to keep tabs on as they report after the close today is (AMZN).

WHY WATCH?: Track consumer spending in U.S. and online shopping

CONCERNS: Even with international sales growing, how equipped is AMZN to handle a dramatic consumer slowdown?

Also, something very important we want to listen for this afternoon on the call. Last quarter, AMZN reported some gross margin pressures herein the U.S. due to their competitive pricing. We want to know how that margin pressure comes in this quarter. Judging by the last call, and the concern among the analysts questioning management, a further decrease in margins could begin to be viewed as problematic.

4. MBA Mortgage Application Data Adds Insult to Injury

To add insult to the injury caused earlier this week by Existing Home Sales, mortgage applications filed last week fell 14.2% compared to the week before, according to the Mortgage Bankers Association. Year-over-year application volume fell 3.2%.

Despite declining prices, fewer applications are appearing. Why? Probably because mortgage rates have stubbornly refused to budge much: 30-year fixed mortgage averaged 6.04% last week, up from 5.74% the previous week and the 15-year fixed-rate mortgage averaged 5.6% last week, compared to 5.27% the week before.

5. Spending Smart, Not Hard

Ran across Thomas Kostigan's "Sophisticated Investor" column today on Marketwatch discussing a recent survey by Harris Interactive conducted for the American Institute of Certified Public Accountants (AICPA).

Apparently, 25% of adults surveyed say they are not spending as much in order to save money. Now, that doesn't sound like a lot (maybe 75% of us spending the same or more!)... unless you compare it to the results of the same poll last year, when just 2% said they were cutting spending.

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