June 6 (Bloomberg) -- United Parcel Service Inc. promoted Chief Operating Officer David Abney to chief executive officer as the world’s largest package-delivery company reshapes U.S. operations after a surprise surge in online Christmas shopping.
CEO Scott Davis, 62, will retire effective Sept. 1 and become non-executive chairman as Abney, 58, assumes his new role, Atlanta-based UPS said today. The new CEO began his 40-year UPS career as a part-time package loader.
Abney will take over at a crucial time, as UPS heads toward the height of the holiday e-commerce rush that overwhelmed the company with last-minute shipments in 2013. He led the team that reviewed UPS’s response, which spawned a $100 million, multiyear push to expand some parcel facilities and accelerate use of new technology to make delivery routes more efficient.
“This upcoming peak season is going to be a big test for UPS after what happened last year,” said Kevin Sterling, a BB&T Capital Markets analyst based in Richmond, Virginia. “The timing is interesting. Scott is stepping out of the way before peak season, giving David a chance to put his stamp on it.”
UPS’s efforts will add capacity to deal with the crush of peak-period shipments and improve communication with UPS’s biggest customers so the company can better forecast demand, Abney said today in a telephone interview.
Tardy deliveries helped raise costs after the Christmas shopping rush and sliced revenue by $50 million. Many online retailers were promising next-day delivery late on Dec. 23 even as UPS grappled with unexpected volumes and fallout from harsh winter weather earlier in the month.
“A change in CEO doesn’t necessarily bring about a change in strategy,” said Art Hatfield, a Raymond James Financial Inc. analyst based in Memphis, Tennessee. “I think the board wanted an operating guy.”
UPS has climbed more than 50 percent during Davis’s tenure, beating the 36 percent gain for the Standard & Poor’s 500 Index. The shares rose 0.1 percent to $103.69 at 11:07 a.m. in New York. Hatfield recommends UPS as outperform, while BB&T’s Sterling rates the company as hold.
One challenge that may be resolved before Abney takes over: whether to follow FedEx Corp. with so-called dimensional pricing, in which customers are charged for ground-shipped packages based on size, not just weight. Sterling has estimated that such a change at UPS could produce $350 million in extra revenue.
FedEx’s move, announced last month, is “sensible,” and UPS will make a decision on dimensional pricing within a month, Davis said today in a telephone interview.
Abney led UPS’s 2001 acquisition of Fritz Cos., its largest purchase at that time, for $450 million in stock. UPS bought Fritz, with operations in more than 120 countries, to boost its ability to process freight through customs, arrange air and ocean shipping, and manage distribution. UPS later combined Fritz and seven other purchases made over 18 months into a new customs-brokerage and freight-forwarding unit led by Abney.
“He’s got international experience, M&A experience and he’s a lifer,” Sterling said. “I think the direction the board wants to take UPS the next couple of years is to do more international expansion.”
Davis navigated the global financial crisis and the 5.16 billion euro ($7 billion) bid for TNT Express NV that collapsed last year. Not being able to clinch the TNT deal was his biggest missed opportunity, Davis said today.
While UPS is appealing a decision by the European Union’s antitrust regulator to block the purchase, it’s “unlikely we’ll take another stab at purchasing TNT,” Davis said.
Abney’s appointment extends UPS’s signature management practices of naming leaders from within the company and changing CEOs after an average of about 5 1/2 years, a milestone that Davis reached in June 2013.
Regular CEO turnover has been a feature at UPS since founder Jim Casey left the company in 1962 after more than five decades in charge. Transitions since Casey’s exit have earned UPS a reputation for stability in a situation yet to be faced by FedEx Corp., which Fred Smith has led since starting the carrier in 1971.
Davis said the typical UPS CEO tenure of five to seven years isn’t a rule, and that he wasn’t obligated to leave. The board considered several candidates, including Chief Financial Officer Kurt Kuehn, Davis said.
UPS’s culture of internal promotions and lengthy careers is so ingrained that rank-and-file employees deemed Davis an outsider upon his selection as CEO, even though he had been at the company for 20 years, because he had never worked sorting packages or driving a truck.
Abney joked today that his own tenure would make such a claim impossible.
“After being here 40 years, no one would consider me an outsider,” Abney said.
To contact the editors responsible for this story: Ed Dufner at email@example.com Molly Schuetz