Q. What is your opinion of shares of United Parcel Service Inc.? - RA, via the Internet

A. Expectations of a weak US economy and high fuel prices continuing into next year have prompted the world's largest delivery company to enact a hiring freeze and significantly reduce its spending.

The question for investors is whether the company's stock has adequately discounted those problems. Shares of United Parcel Service (UPS) are down 10 percent this year following last year's six percent decline.

UPS handles an average of 15 million shipments a day throughout the world, with the US package segment generating two-thirds of its revenue. The company's net income was down 21 percent in the second quarter, in part due to lower demand for its premium shipping services

It expects to gain $1 billion annually in added sales from a planned 10-year contract to handle the North American air-parcel deliveries of Deutsche Post's DHL unit. Last year, the company had just under $50 billion in revenue.

But that proposal faces a congressional hearing on September 16. Federal regulators have been asked to examine it closely, primarily because 8,000 jobs would be lost due to the closing of DHL's Ohio air hub.

The consensus analyst rating on UPS shares is between "buy" and "hold", according to Thomson Financial, consisting of four "strong holds," four "buys" and nine "holds".

In a business where the size of a network is crucial, UPS has a fleet of about 600 planes and 100,000 vehicles.

China is a major focus, as evidenced by the flood of UPS advertising throughout that country during the Olympic Games.

Its billboards proclaimed: "If UPS can fully assist the Beijing 2008 Olympics, they can fully assist you".

Most important, the firm is opening a global express-delivery hub in Shanghai in November and plans to open an enormous intra-Asia sorting centre in the city of Shenzhen in 2010.

In the US, the company's new labour contract with the International Brotherhood of Teamsters, which represents about 238,000 UPS workers, took effect in August and is expected to help its bottom line.

Earnings are expected to decline 13 percent this year compared with eight percent growth predicted for the air delivery and freight services industry. Next year's forecast is for a 13 percent gain versus 15 percent expected for its peers. The expectation of a five-year annualised return of 11 percent compares with 15 percent projected industrywide.

Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, 555 N Central Ave., Suite 302, Phoenix, AZ 85004-1248, or by e-mail at andrewinv@aol.com

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