UPS invests in upgrades to prevent holiday crush, 2Q profit drops
During last year's holiday season, a big increase in online shopping and a crush of last-minute orders by shoppers who jumped on offers of free shipping caught UPS by surprise.
UPS lowered its outlook for the year as it announced plans to spend more on technology and other enhancements to improve service during peak season.
UPS said it will spend $175 million on upgrades that include expanded operations on the day after Thanksgiving and sped-up deployment of software designed to help drivers find the quickest route to a destination.
During last year's holiday season, a big increase in online shopping and a crush of last-minute orders by shoppers who jumped on offers of free shipping caught UPS by surprise. The company was forced to hire extra workers to handle the rush, but some gifts still arrived late.
The Monitor's Mark Trumbull explained the situation in December:
Thanksgiving came late this year, leading to a compressed holiday shopping season. Add in some bad winter weather, the increasing consumer shift from physical storefronts to online ordering, and the tendency of many shoppers to make decisions late in the game, and it was enough to thwart pledges of delivery by Christmas Day.
As a result of the boost to spending, UPS lowered its full-year outlook for adjusted earnings to $4.90 to $5 a share. It previously expected to earn around $5.05 a share. Shares fell $2.95, or 2.9 percent, to $99.71 in premarket trading.
The Atlanta-based company also said second-quarter profit declined to $454 million, or 49 cents per share, from $1.07 billion, or $1.13 per share, in the same quarter a year earlier.
UPS took a charge of $665 million for the transfer of post-retirement liabilities for certain Teamster employees to defined contribution health-care plans
Earnings, adjusted for non-recurring costs, were $1.21 per share. The average per-share estimate of analysts surveyed by Zacks Investment Research was for profit of $1.24.
The company said revenue climbed 5.6 percent to $14.27 billion from $13.51 billion in the same quarter a year ago, and beat Wall Street forecasts. Analysts expected $14.07 billion, according to Zacks.
UPS said global package shipments rose 7.2 percent in the quarter, boosted by shipments of lightweight e-commerce packages in the U.S. and higher international export shipments. Revenue per package fell 2 percent, however, as customers continued to opt for lower-cost shipment methods.
United Parcel Service Inc. shares have fallen $2.42, or 2.3 percent, to $102.66 since the beginning of the year, while the Standard & Poor's 500 index has climbed 7.1 percent. However, the stock has risen $15.85, or 18 percent, in the last 12 months.