UPS Revenue Growth Outpaced by Rising Costs -- Update
April 27 2017 - 11:53AM
Dow Jones News
By Paul Ziobro and Joshua Jamerson
United Parcel Service Inc. insists that money spent today to
accommodate U.S. e-commerce growth will eventually pay off with
better margins later this year.
For now, investors are waiting to see if those promises come
true. The parcel-delivery company posted a 2.1% decline in
operating profit in the first quarter, including a 2.4% decline in
its domestic business.
The U.S. business is bearing the brunt of spending, with
construction under way for two major automated hubs in Salt Lake
City and Dallas, plus the addition of delivery and pickup services
on Saturday. The company is raising rates on shippers and adding
new surcharges, too, but not enough to offset the extra costs to
help facilitate more consumers shopping online. UPS says shipments
to homes, a proxy for e-commerce deliveries, rose about 7% in the
first quarter, ahead of the 2.6% volume increase in its U.S. parcel
business.
"We're stepping up the pace of investments now to enable UPS to
better participate in the vast opportunities we see ahead," Chief
Executive David Abney said on Thursday's earnings call.
UPS overall posted a 2.4% increase in first-quarter earnings to
$1.16 billion. The bottom line was helped by a smaller income-tax
expense in the period. Revenue rose to $15.32 billion from $14.41
billion a year earlier, ahead of Wall Street projections.
Shares of UPS were little changed Thursday, rising 34 cents to
$107.97. The stock is down about 6% this year.
UPS faces skeptics that it isn't moving as aggressively as rival
FedEx Corp. to recoup its costs through higher prices. UPS revenue
per package rose 2.6% in the quarter, around the midpoint of what
it projected for the year.
In an interview Thursday, Mr. Abney said UPS is careful not to
be too aggressive in pricing because customers may ship packages
with other carriers.
"You do that and at some point, you can have unused capacity,"
he said, which can drive up overall costs further.
"I'm convinced we have the right balance," Mr. Abney added.
"We're going to focus on growing the business and increasing the
yield."
Shipping has become more expensive, in part because of the added
costs of delivering e-commerce orders to homes, rather than its
mainstay business-to-business segment, where more packages are
delivered to one location. The trend has put pressure on UPS to try
to keep costs under control by using technology such as
route-optimization software.
One area where e-commerce is helping UPS profits is in its
supply chain and freight division. Though its smallest unit,
operating profit rose nearly 22%, which Mr. Abney attributed, in
part, to e-commerce companies needing to store their wares closer
to where their shoppers live.
Write to Paul Ziobro at Paul.Ziobro@wsj.com and Joshua Jamerson
at joshua.jamerson@wsj.com
(END) Dow Jones Newswires
April 27, 2017 11:38 ET (15:38 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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