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You are here: Home / World Wide Web / UPS Rides E-Commerce Boost
UPS Rides E-Commerce Wave to New Highs
UPS Rides E-Commerce Wave to New Highs
By David Koenig Like this on Facebook Tweet this Link thison Linkedin Link this on Google Plus
UPS was caught off-guard by the crush of online shopping leading up to Christmas and plans to spend a chunk of its tax-cut savings to invest in its package-delivery network.

The company said Thursday that it plans between $6.5 billion and $7 billion of capital spending this year on things like new cargo airplanes and automation in its distribution centers. Executives said they will use one-fifth of the company's expected savings from the new lower corporate income-tax rate on improving the business.

Atlanta-based UPS predicted 2018 adjusted profit between $7.03 and $7.37 per share. That seemed to be about in line with analysts' forecast of $7.21, according to FactSet, but a Cowen and Co. analyst said that excluding pension expenses the forecast was weaker than expected.

In morning trading the shares fell $8.75, or 6.9 percent, to $118.57.

Rapid growth in online shopping is a double-edged sword for United Parcel Service Inc. and rival FedEx Corp. They reap higher revenue but are forced to make major investments in their networks to keep up with demand.

UPS said it delivered 762 million packages during the peak season roughly from Thanksgiving through Christmas, an increase of 7 percent over the previous year and 12 million more packages than the company expected.

UPS said it had to spend $125 million more than it planned to handle the surge in demand.

CEO David Abney said the extra deliveries, especially during peak "cyber week" right after Thanksgiving, came from customers throughout its network, not just a few large retail shippers -- suggesting that the breadth of the surge made it harder to handle.

"We are going to take a good look ... at what we need to do around cyber week" and will announce steps to handle the December 2018 peak later in the year, he said on a conference call with analysts.

Abney said that because of expected growth and the benefits of the tax law, UPS will buy 18 new airplanes, including 14 Boeing 747 freighters. The company owns or leases more than 500 planes and does not plan to retire any of them because of the new order.

Executives said they plan to ask the board to increase the dividend and approve about $1 billion in share buybacks, which make remaining shares more valuable.

In the fourth quarter of 2017, UPS earned $1.1 billion, or $1.27 per share, reversing a year-earlier loss of $239 million, when results were weighed down by a pension expense.

Adjusted earnings, which exclude some pension and tax items, were $1.67 per share. That was a penny better than the expectation of analysts surveyed by FactSet and two cents better than a poll of analysts by Zacks Investment Research.

Revenue rose 11 percent to $18.83 billion, also topping expectations.

For all of 2017, UPS earned $4.9 billion, up from $3.4 billion in 2016.

© 2018 Associated Press under contract with NewsEdge/Acquire Media. All rights reserved.

Image credit: iStock/Artist's concept.

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