UPS Profit Falls Amid Higher Costs

By Allison Prang

Earnings at United Parcel Service Inc. fell slightly for the third quarter as higher costs from expanding Saturday package delivery and recent natural disasters weighed on its U.S. business.

The results come just a day after the company announced it would increase U.S. shipping rates as it attempts to recoup the higher costs associated with e-commerce shipments. The rate hike, which could come as welcome news for investors waiting for UPS to better compete on pricing against FedEx Corp., are slated to go into effect Dec. 24.

Similar to how brick-and-mortar retail has struggled with the demise of physical storefronts, the consumer shift toward online shopping has also affected shipping companies like UPS that are tasked with making deliveries to people's homes that, in comparison to large store shipments, are more expensive.

UPS, which has raised prices in the past, also announced in June it was increasing its holiday shipping costs. FedEx, one of UPS's main competitors, has increased prices, but isn't going to apply a holiday price hike for most of its shipments.

Net income at UPS for the third quarter was $1.26 billion, or $1.45 a share, down 0.7% from the year-ago period. Both metrics were in line with analysts' expectations. The company's earnings report also follows a torturous hurricane season that disrupted the shipping industry in multiple U.S. states.

Shares in UPS were down 0.6% to $117.87 in premarket trading.

Revenue excluding currency impacts rose by 7% to $15.98 billion. Analysts were predicting revenue of $15.62 billion. Operating expenses were $13.94 billion, up 8.1%.

Average revenue per shipment excluding currency impacts rose 2.8% to $10.78. Due to Hurricane Maria, for the bulk of this month UPS cut ground shipping rates for parcels going from the U.S. to Puerto Rico and other places by 35%.

Revenue excluding currency costs from the company's international business grew at a 12% clip, faster than its domestic segment growth of 3.9%. The company gets about 60% of revenue from its domestic operations.

Supply chain and freight revenue excluding currency impacts rose by 13% to $2.97 billion.

In addition to higher costs associated with e-commerce, UPS and its competitors could be negatively affected further by companies like Amazon.com Inc., which is testing a delivery service called Seller Flex where it would deliver goods from sellers to buyers.

For the full year, UPS now expects adjusted per-share profit to be between $5.85 and $6.10, compared with its prior guidance of $5.80 to $6.10.

Write to Allison Prang at allison.prang@wsj.com

(END) Dow Jones Newswires

October 26, 2017 09:09 ET (13:09 GMT)

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