UPS Drops After Announcing Multibillion-Dollar Plane Purchase

  • U.S. courier buys Boeing jumbo freighters for use abroad
  • Earnings meet analysts’ estimates as domestic profit slips

UPS CFO on Boeing 747 Order: It Was Time

United Parcel Service Inc.’s shares dropped after the package giant agreed to purchase freighter jets valued at $5.3 billion to continue its international expansion.

Delivery of the 14 Boeing Co. 747-8 jumbos will begin next year, the Atlanta-based courier said in a statement Thursday. The planes will be used in international markets and allow the courier to bring smaller 747-4 planes back to the U.S. The deal’s value is based on list prices, before the discounts that are customary for large purchases.

UPS has been expanding across the globe, including an investment of $2 billion over five years in Europe. It also is improving profit margin on e-commerce shipments in the U.S. by automating warehouses and using mapping software to cut the number of miles traveled by its iconic brown vans.

The freighter purchase probably will boost the long-term capital expense target past UPS’s goal of 4.5 percent to 5 percent of revenue, Robert W. Baird & Co. analyst Ben Hartford said in a research note. The result could create a “near-term overhang” in the company’s stock.

The shares fell 1.3 percent to $107.15 at 11:01 a.m. in New York, after declining as much as 2.5 percent, the most intraday since July 29.

Third-quarter international operating profit jumped 14 percent from a year earlier, juiced by gains in packages carried, base rates and efficiency measures, UPS said as it reported earnings that matched analysts’ estimates.

Asia Growth

Growth in China and Hong Kong is like “we’ve never seen before,” James Barber Jr., the president of UPS International, said on a conference call with analysts.

International-division sales increased 2.2 percent to $3 billion. Export volume rose 7.1 percent, helped by double-digit growth in Asia and high single-digit growth in cross-border shipments within Europe. Revenue dropped 2.8 percent per package, however, declining 1.9 percent on a currency-neutral basis.

Operating profit in the U.S. package division slipped 0.5 percent as sales climbed 4.8 percent to $9.3 billion. Average daily package volume in the ground segment gained 5.2 percent.

Adjusted earnings climbed to $1.44 a share, meeting the average of analysts’ estimates compiled by Bloomberg. Revenue rose 4.9 percent to $14.9 billion, while analysts predicted $14.7 billion. 

UPS reaffirmed its full-year profit forecast of $5.70 to $5.90 a share as it heads into the crucial pre-Christmas shipping season. Investors have gained confidence that UPS can handle the surge in packages during the peak holiday season, sending shares up 13 percent this year through Wednesday. In previous years, the company had alternately failed to prepare adequately for the surge or overspent by adding too many temporary employees.

“We are performing according to our expectations, and we’ve taken the necessary steps to ensure we capitalize on record volume levels during peak season,” Chief Financial Officer Richard Peretz said in the earnings release.

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