UPS Extends Longest Losing Streak Since 2012 on E-Commerce WorryBy
Shares log sharpest nine-day decline since October 2008
Investors want price increases amid $7 billion spending plan
United Parcel Service Inc. notched its longest losing streak since 2012 as investors stewed over the courier’s efforts to handle the rise of online shopping.
Investors are questioning why UPS isn’t raising prices more steeply as it plans capital spending of as much as $7 billion this year, said Kevin Sterling, a Seaport Global analyst. The company is boosting its fleet of modern freighter jets and stepping up automation to handle surging e-commerce shipments.
“They’re in the penalty box,” Sterling said. “It’s a show-me story. They’ve got to show progress. If they don’t, it’s going to be hard for investors to put money in this stock.”
The string highlights the pressure on couriers from the rapid growth of online shopping. While spurring robust demand for the services of UPS and FedEx Corp., it’s also handing the companies a challenge because residential deliveries tend to be less profitable than shipments to businesses.
Another threat: Amazon.com Inc.
The e-commerce giant is expanding a service to make more products available for quick delivery directly from merchants, Bloomberg News reported last month. In addition, a potential bid by Amazon to be listed as a shipping option on more transportation software platforms could trigger greater pricing competition among couriers, Morgan Stanley analyst Ravi Shanker said this week in a note to clients.
UPS dropped 2.4 percent to close at $109.28 in New York. UPS has tumbled 18 percent since Jan. 26, the biggest decline for a nine-day stretch since October 2008. FedEx slid 11 percent over that period despite a sharper drop on Thursday, while the S&P 500 Index fell 10 percent.
UPS’s strategy has “yielded strong growth and industry-leading return on invested capital.” Steve Gaut, a spokesman for the company, said by email.
“We are in the midst of a significant investment program designed to further enhance the capacity, capability and efficiency of the UPS network and the overall business,” he said.
The UPS board on Thursday increased the quarterly dividend by 9.6 percent to 91 cents a share on all outstanding Class A and B shares, payable March 7 to shareholders of record on Feb. 20.
UPS fell sharply last week after reporting fourth-quarter results and disclosing its investment plans. Earnings would have fared better if the Atlanta-based company hadn’t had to boost overtime for certain workers after a big surge in shipments flooded its network following Thanksgiving. UPS said it hadn’t anticipated such a big flow of packages, including unexpectedly strong demand from small and midsize companies.
“They should be able to better manage” peak season, said Logan Purk, an analyst at Edward Jones. “This is their bread and butter.”
The miscalculation is testing investor patience, Sterling said.
“How many times have you heard them say they have a good handle on the peak season, and then -- bam, they didn’t,” he said. “That’s wearing thin with investors. The ultimate question is, ‘Can you ever fix it?’ ”