By Laura Stevens
United Parcel Service Inc. on Thursday said that it will record
a $1.05 billion pre-tax charge in the second quarter as it moves
the remaining 125,000 unionized package delivery employees off its
own health-care plan and into multi-employer health-care plans.
The move will fundamentally change the way UPS pays for its
union members' health plans. Instead of being committed to
providing benefits on UPS's own plan, it will now pay funds into
multi-employer health-care plans, union-run plans that are financed
by the workers' employers.
The change will help the company to avoid benefit costs that
were expected to increase at about 8% each year, UPS said. During a
conference call with analysts on Thursday, Chief Financial Officer
Kurt Kuehn said that the company had already factored the
costs--and the charge--into its earnings forecast for the year.
This week the International Brotherhood of Teamsters overrode
several of its local bargaining units to approve a five-year
national contract. The company said in a securities filing it
currently owes about $325 million in back pay and other expenses to
about 253,000 unionized employees retroactive to the contract's
start date, also to be paid in the second quarter.
Under the plan, UPS will transfer a total of $2.27 billion to
the three multi-employer health-care plans to which its employees
are moving. The shift will also allow it to remove about $1.2
billion in retiree health-care liability from its balance
sheet.
Health care was a major sticking point in the latest round of
labor talks. Critics say the move to the new plans result in
benefit cuts--such as introducing a $100 deductible after four
years. The national Teamsters group says the new plan maintains
strong and similar benefits to the employees' current plan.
Multi-employer health plans have flexibility to change benefits
over time, however, something UPS couldn't previously do with its
own plan, according to the presentation on the company's
website.
On Wednesday, the national Teamsters union representing the
delivery workers took the unusual move of overriding three of its
own local bargaining units that had rejected parts of the national
contract, delaying its implementation. Now, the new master contract
is expected to take effect Friday.
The national Teamsters said it was able to take such action on
the grounds that the locals had been objecting to parts of the
contract that had already been agreed to: namely the new
health-care benefits. The locals disagreed and said the national
union overstepped.
The new contract allows UPS to lengthen the time they are able
to use some part-time workers, slows average annual wage growth to
2.4% and lengthens the time it takes some workers to achieve top
pay, according to a presentation on UPS's investor relations web
site.
UPS announced the news Thursday after it reported that a
difficult winter had cost it about $200 million in the first
quarter.
Severe weather conditions affected about half the working days
during the quarter, prohibiting some U.S. employees from working,
executives said during a conference call with analysts. The impact
is expected to push the entire year's profits to the lower range of
the company's previous forecast of between $5.05 and $5.30 per
share.
"I don't think there is a person in the country who is more
happy about seeing spring weather return, and as a result of it, in
April, both our productivity and service has returned to normal
levels," said Myron Gray, head of U.S. operations.
During the earnings call, executives discussed plans to improve
its performance during this year's busy holiday season. In addition
to making permanent changes, such as increasing the space to unload
trailers at its Louisville, Ky., air hub, it is also adding about
6,000 new parking spaces to load and unload its delivery trucks, an
increase of 10%.
The company also is in talks with retailers to better forecast
package flow, he added. UPS said it is investing around $600
million to improve its network and technology to avoid problems
this year.
For the first quarter, the shipper reported earnings of $911
million, or 98 cents a share, down 12.4% from $1.04 billion, or
$1.08 a share, a year earlier. Revenue rose 2.6% to $13.8
billion.
The company's U.S. domestic package business reported $927
million in operating profit, down by $158 million from a year
earlier. The international business was a bright spot, reporting a
5% increase in revenue to $3.13 billion.
Erin McCarthy contributed to this article.
Write to Laura Stevens at laura.stevens@wsj.com
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