UPS Downgraded To Hold

We are lowering our rating on United Parcel Service, Inc. (UPS) to Hold from Buy, as well as our target price to $47. UPS reported 4th quarter diluted EPS of $0.83, down 22% year over year and below the $0.85 consensus and our $0.88 estimate, largely due to lower-than-expected revenues. Total revenues fell 5% year over year to $12.7 billion as all business segments suffered declines.

Positively, UPS offset some of the revenue shortfall by slashing expenses, which fell 36%. UPS has taken a number of steps to counter the prospect of falling revenues, including the consolidation of operating districts, a reduction in air segments, the elimination of certain package handling operations, and a freeze in management salaries and the suspension of matching contributions for the 401k benefit plan.

Going forward, UPS declined to provide any earnings guidance beyond the first quarter, stating that first quarter EPS should be in the $0.52-0.68 range, with our $0.60 estimate at the midpoint. We are cutting our 2009 diluted EPS estimate to $3.10 from $3.35, as we have reduced our revenue and share repurchase estimates due to the global economic slowdown.

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