UPS Projects Fourth-Quarter Profit Below Forecasts
United Parcel Service Inc. (UPS) reported preliminary fourth-quarter earnings that trailed analysts’ estimates after a surge in online shopping just before Christmas forced it to hire more temporary workers than planned and miss holiday deliveries.
Earnings per share will be $1.25 in the quarter, the company said in a statement, falling short of a $1.43 average estimate from 26 analysts. Atlanta-based UPS expects to report an adjusted profit of $4.57 a share for 2013, below its prior projection of $4.65 to $4.85, it said. Analysts anticipated $4.75 on average. UPS will report results on Jan. 30.
The shipping company, which plans year-round for the holiday season, was overwhelmed when the volume of last-minute air shipments exceeded its capacity to process them. The crunch forced UPS to hire 85,000 temporary workers, 55 percent more than its original plan.
“This is a little bit bigger than what people were factoring in,” Anthony Gallo, a Wells Fargo & Co. analyst, said in an interview of the surge impact. Investors “need to digest what the implications are as it relates to longer-term growth. There are clearly higher costs associated with this surge type of business.”
Shares fell 0.6 percent to $99.91 in New York. They have risen 25 percent in the past year. FedEx Corp., owner of the world’s biggest cargo airline, declined 0.9 percent to $140.51.
UPS hasn’t announced results of its inquiry into what caused air shipments to miss before-Christmas deliveries.
“U.S. results were negatively impacted by the challenges of the compressed peak season coupled with an unprecedented level of online shopping that included a surge of last-minute orders,” UPS said in the statement today.
The company delivered more than 31 million packages on Dec. 23, 13 percent higher than the peak day a year earlier and the most in its history. The highest delivery day occurred six days later than the the company had planned and was 7.5 percent greater than anticipated, UPS said. The holiday shopping season was compressed in 2013 by a late Thanksgiving.
Satish Jindel, president of Pittsburgh-based SJ Consulting Group, estimated 96 percent of deliveries were on-time, with 2.9 million packages arriving after Christmas. He said UPS, FedEx and others handled about 73 million parcels on Dec. 24.
“We think UPS did a poor job of forecasting the holiday season, but we expect improved readiness this year as online shopping continues to grow,” Jim Corridore, an analyst with Standard & Poor’s Capital IQ, said in a note to investors today. “This is a positive trend, but UPS needs to do a better job capitalizing upon it.”
Benjamin Hartford, a Robert W. Baird & Co. analyst, earlier estimated UPS would spend $50 million to $100 million on refunds from not meeting shipping guarantees last quarter, rebates and higher operating costs.
UPS is “confident of its 2014 outlook” and expects full-year results will increase in line with long-term targets of 10 percent to 15 percent from 2013, the company said. The projection implies 2014 profit of $5.03 to $5.26 a share, below current analyst estimates of $5.49.
Winter weather in the South Central U.S. added costs “and likely was a significant factor driving results in the quarter lower,” David Vernon, a Sanford C. Bernstein & Co. analyst, said in a note to investors.
Just a few hundred thousand unexpected orders can overpower even the most sophisticated operation, Jindel said in an interview earlier this month.
“If you, as Amazon, tell me that today that I’m going to have 1.2 million packages instead of 1 million, there’s no way I can get enough resources on board to handle that,” he said.
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