UPS United Parcel Service

   (FROM THE WALL STREET JOURNAL 2/3/16) 
   By Laura Stevens 

United Parcel Service Inc. reported profit nearly tripled in the fourth quarter, exceeding Wall Street expectations, as more customers shipped via air and higher prices and cost-saving efforts paid off during its all-important holiday season.

The delivery giant also gave an upbeat earnings forecast for 2016 on strong e-commerce demand even as industrial production falls in key countries amid a weaker global economic outlook.

UPS set out this past holiday to prove to investors it can balance costs with late-year surges in e-commerce volume -- deliveries to consumers accounted for about 60% of all U.S. deliveries in December, up from about 45% in the third quarter.

Despite peak holiday volumes coming in slightly under forecast, UPS posted earnings of $1.33 billion, or $1.48 a share, up from $453 million, or 49 cents a share, a year earlier. UPS missed earnings expectations the previous two holidays, first because it wasn't able to deliver all its packages on time, and then because it over prepared for volume that came in unevenly. Both those years it overspent by $200 million.

The company said it lowered costs by shifting more than 35% of its SurePost package deliveries -- typically delivered to the door by the U.S. Postal Service -- back into its own network to increase the number of packages a driver delivers at each stop. Other initiatives also started to pay off, including driver-routing software Orion, now 70% installed, and the introduction of Access Point locations where customers can pick up their packages. Just a 10% increase in packages per stop creates about $200 million in operating profit improvement, Chief Commercial Officer Alan Gershenhorn told analysts Tuesday on an earnings call. "The things that we're doing to our network now are going to enable us to handle bigger and bigger peaks," he added.

UPS said it hired between 90,000 and 95,000 seasonal workers, as expected, but brought them on later, reducing hours by 8%. Its summer acquisition of Coyote Logistics also lowered outside transportation costs.

Holiday volume came in lower than UPS expected, as it delivered 612 million packages between Black Friday and New Year's Eve, down from the expected 630 million. Chief Financial Officer Richard Peretz in an interview attributed that, in part, to more holiday returns being shipped later than expected, in January.

Ground package volume also grew below expectations, due partly to slowing industrial production, as well as UPS's decision to drop some low-yield customers.

An increase in air volumes helped make up for that, as its U.S. deferred air product grew nearly 15%, while next-day overnight products were up 10%. Retailers were using air to ship packages farther and faster, Mr. Peretz said, as they aim for two-day delivery.

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Anne Steele contributed to this article.

(END) Dow Jones Newswires

February 03, 2016 02:47 ET (07:47 GMT)

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