UPS Bulks Up to Meet Web Boom -- WSJ
October 27 2017 - 3:02AM
Dow Jones News
Delivery giant is accelerating spending on facilities and planes
as volume increases
By Paul Ziobro
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 27, 2017).
United Parcel Service Inc. plans to spend more on bigger
package-handling facilities, planes and other capacity upgrades
next year, efforts to keep up with an e-commerce boom that shows no
sign of slowing.
The Atlanta-based delivery giant on Thursday said it would add 5
million square feet of capacity in 2018, five times what it added
this year, including new fulfillment and sorting centers, larger
planes and rolling out Saturday delivery to more markets. UPS
expects its spending on such initiatives to be 8% of its 2017
revenue, more than the 6% to 7% of revenue that it had forecast for
the coming years.
"We are investing in order to build our network, not just for
the next year or two, but for the next generation," UPS Chief
Financial Officer Richard Peretz said on a call with analysts. "If
we can move a little faster, it's always going to be the best thing
we can do."
In an interview, Chief Executive David Abney said that the
long-term capital expenditure levels aren't changing but that the
company had to speed up the spending because of expected volume
increases. "That can cause the numbers to change from one year to
the next, but it doesn't cause the overall capex to change over
time," he said.
As more people shop online, UPS, along with FedEx Corp. and U.S.
Postal Service, have made investments to accommodate the increasing
number of packages moving through their networks. But investors
have grown concerned that the spending doesn't seem to be abating
anytime soon.
UPS reported a slight decline in its third-quarter earnings, as
higher costs from expanding Saturday delivery and recent natural
disasters weighed on its U.S. business.
Profit fell slightly to $1.26 billion, or $1.45 a share,
compared with the year-earlier period. Revenue rose 7% to $15.98
billion, with the average revenue per shipment, excluding currency
translation, up 2.8%.
UPS shares rose 1.6% to $120.46 in Thursday trading.
Delivery companies are raising prices to recoup the network
investments they are making. On Wednesday, UPS said it would
increase rates 4.9% starting in late December, and it lowered the
threshold for oversize package fees, so that a wider range of items
would be subject to an extra surcharge.
UPS has previously announced plans to tack on extra fees for
most packages shipped during the busiest weeks of the holiday
season, which it is implementing for the first time this year. UPS
expects to spread the load more evenly during the season, aiming to
top 30 million packages delivered on 17 of the 21 delivery days
between Thanksgiving and New Year's Eve, up from 11 last year.
Overall, UPS expects to make 750 million deliveries during that
period, up 5.6% from last year.
In the months leading up to the holidays, UPS has been working
more closely with shippers to anticipate how much space it will
need on its delivery trucks and planes. There are now higher stakes
in these forecasts, because UPS plans to charge shippers for the
space and related labor costs if they go unused.
For the full year, UPS now expects adjusted per-share profit to
be $5.85 to $6.10, compared with its earlier forecast of $5.80 to
$6.10.
Allison Prang contributed to this article
Write to Paul Ziobro at Paul.Ziobro@wsj.com
Corrections & Amplifications UPS expects its capacity
spending to be 8% of revenue this year, more than the 6% to 7% of
revenue that it had forecast for the coming years. An earlier
version of this article incorrectly said UPS expects capacity
spending to be 8% to 9% of 2018 revenue, more than the 7% it had
previously forecast. (Oct. 26, 2017)
(END) Dow Jones Newswires
October 27, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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