By Laura Stevens and Anna Prior
United Parcel Service Inc. on Thursday outlined plans for
preventing another Christmas disaster that includes investing in
expanding some of its hubs to handle more packages and working more
closely with customers to determine how many packages they'll
expect to ship.
The news came as it unveiled the results of a disappointing
fourth-quarter that were badly hurt by the cost of the holiday
debacle.
"Our top priority is to adapt and invest in the network to make
capacity to hopefully meet customer demands," said Chief Financial
Officer Kurt Kuehn in an interview with The Wall Street Journal.
These steps will also include improving automatic control systems
for things like sorting packages, as well as collaborating with
retailers to better predict volumes, he said. The company will also
consider increasing prices to make sure it is compensated properly
for the investments it makes, he added.
The company plans to increase its investments in both
modernizing and expanding its space and equipment by about $500
million in 2014 compared with last year, increasing its total
expected capital expenditures to $2.5 billion in 2014. The company
will spend an additional $100 million to accelerate some projects
already in place, including Orion, which saves miles through
calculating more efficient routes.
One of the most important aspects of cooperation with customers
will be to develop new tracking systems so that consumers can see
where their package is from start to finish, Mr. Kuehn said. Over
the holidays, retailers were dropping off trailers of packages at
UPS facilities having already issued tracking numbers to customers,
but those packages weren't yet in UPS's systems, causing
confusion.
UPS will also move to work more closely with retailers on
forecasting how many packages will be coming into the system and
when.
For the full year, UPS said net income was $4.37 billion,
compared with $807 million in 2012, which included a $4.8 billion
charge as it changed its pension accounting methods.
For the fourth quarter, UPS reported earnings of $1.17 billion,
or $1.25 a share, compared with a year-ago loss of $1.75 billion,
or $1.83 a share, because of the charge for pensions. Revenue rose
2.8% to $14.98 billion.
The company said the unexpected surge in the number of packages
caused it to incur between $125 million and $150 million in
expenses associated with the hiring of an additional 30,000
temporary employees and other adjustments. The company paid an
additional $50 million in refunds for late packages in the fourth
quarter.
More than 70 different online retailers were promoting
guaranteed next-day delivery on purchases made as late as 11 p.m.
on Dec. 23, the company said on an analyst call.
A big factor in the company's Christmas Eve admission that some
packages would be late was that retailers dropped off an unexpected
number of truckloads of packages to be shipped from the company's
Louisville, Ky., Worldport air hub, Mr. Kuehn said.
"There were hundreds of ground loads that came to us that
weekend," Mr. Kuehn said. Despite a recently completed expansion
there, the air facility was unequipped to unload that much
last-minute ground volume, he said. As a result, the company plans
to modify the facilities there to handle that type of traffic.
A number of retailers, including Amazon and Zappos, have
distribution centers near Louisville.
Despite its fourth-quarter performance, UPS said earlier this
month it is confident in its 2014 outlook, saying it expects
full-year earnings to be within a range of $5.05 to $5.30 a share.
Analysts were looking for per-share earnings of $5.31.
UPS also said it would continue its share-buyback program, with
plans to repurchase $2.7 billion of shares in 2014.
Write to Laura Stevens at laura.stevens@wsj.com and Anna Prior
at anna.prior@wsj.com
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