By Laura Stevens
United Parcel Service Inc. reported strong earnings Tuesday,
delivered optimistic rest-of-the-year guidance and outlined its
plans for controlling costs during this year's peak holiday
season.
Despite a slight dip in revenue, the news was enough to send UPS
shares up more than 5% to $100.07 in midday trading.
The delivery company said all three of its major business
segments boosted profitability, which contributed to a near
tripling in net income to $1.23 billion. The bottom line also
reflected a positive comparison to last year, which included an
employee-related health-care after-tax charge of $665 million in
the same quarter.
The latest results caused UPS executives to raise their
full-year outlook to the high range of their previous guidance of
between 6% and 12% growth in earnings per share.
Executives said that the stronger dollar has driven more import
traffic to the U.S., a benefit to the bottom line and a boost to
the company's international segment. Additionally, the company
detailed efforts already under way to control costs during the
all-important holiday season, something that has recently weighed
on shares after two big fourth-quarter misses in a row.
UPS is already talking about pricing and the holidays with its
customers, Chief Financial Officer Richard Peretz said in an
interview with The Wall Street Journal--particularly with those who
tend to flood the network with unexpected packages.
"It's about customers that surge, to make sure that we're
appropriately looking at both the compensation that UPS receives
against the resources they're using," he said. Some of those
customers send between about 10% and 20% more packages on surge
days, while others ship several times their normal average package
number, he said. The company is also talking with customers about
how to better manage those spikes, he added.
In addition to charging more, the company plans to use the same
number of delivery truck drivers this holiday season, but to extend
their hours instead of adding more employees to control costs this
year, executives said. UPS is continuing to expand its network
capacity, and it is also establishing package pickup locations in
100 cities in an effort to condense deliveries.
However, executives cautioned the economy has been a damper in
the U.S. as consumers take more of a wait-and-see approach when it
comes to shopping online. This is causing uneven growth for
e-commerce, they said. Total U.S. daily deliveries grew 1.8% in the
quarter, compared with 7.4% growth last year.
"We had some really big growth rates last year, so if you look
at year over year, that may be part of it," Mr. Peretz said. "The
growth rate has slowed down as [e-commerce] has become more
saturated--more people are now buying."
U.S. domestic package revenues were up 1.6% at $8.8 billion,
while operating profit was flat at $1.2 billion when excluding
one-time items.
Revenue fell 1.2% to $14.1 billion due to currency effects and a
drop in fuel surcharges. Lower fuel costs helped contribute to the
company's bottom line.
Lindsay Ellis
contributed to this article.
Write to Laura Stevens at laura.stevens@wsj.com
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