UPS Reports Drop in Profit, Says Weather Hurt Results in U.S. -- Update

By Paul Ziobro

United Parcel Service Inc. posted a lower profit in the first quarter as upgrades to its parcel delivery network proved no match for Mother Nature.

The delivery giant said it incurred about $80 million in extra costs associated with dealing with severe winter weather in the U.S., causing operating profit to fall 12% in its main business unit.

Overall profit fell about 17% to $1.11 billion compared with the same period last year, while revenue rose slightly to $17.16 billion.

UPS is spending billions of dollars to upgrade its delivery network with more capacity, automated facilities and new technology that can reroute packages around congestion. The company says those measures are helping to control costs as it handles the vast amounts of e-commerce packages that move through its facilities and on its trucks.

"We are bending the cost curve in our U.S. domestic segment as highly automated hubs come online, producing improved productivity benefits," Chief Executive David Abney said.

UPS's new strategy also includes chasing business that yields greater profits, including small- and medium-size business and health-care shipments. In the latest period, UPS said it grew its business-to-business deliveries, which are generally more profitable, once again. It also said that the small- and medium-size shippers increased returns by a double-digit percent range in the months after the December holidays.

Mr. Abney said that while Amazon.com Inc. is bringing some of its delivery volume in-house, it's not affecting the company's shipping volume. "While we continue to focus on servicing their needs, there is so much more to e-commerce than Amazon," Mr. Abney said.

In the company's international business, operating profit fell 11% on a 2.1% decline in revenue. Its smaller supply chain and freight unit logged a 17.6% increase in profit, even as revenue fell nearly 4%.

While UPS backed its guidance for the year, the company said that its adjusted per-share earnings growth will be relatively flat in the current quarter compared with a year earlier due to pension financing costs. It will also open about 30% of its new network capacity for the year in the second quarter, causing startup costs.

That will push most of UPS's earnings growth into the back half of the year. Citi analyst Christian Wetherbee said that "will likely not resonate well with investors as it appears we need to wait further for transformation, placing increasing risk on the always challenging holiday quarter."

UPS will have less of a tailwind from growing economies to back its business. Mr. Abney said that global economies, including the U.S., are growing at a slower rate than last year. Trade uncertainty is also causing jitters and some companies are adjusting their supply chains as a result.

"The China-U.S. trade uncertainty is prompting softer industry forecasts in the region," Mr. Abney said.

For the period, UPS reported earnings of $1.28 a share, down from $1.55 a share. On an adjusted basis, UPS said earnings were $1.39 a share. Analysts polled by Refinitiv were expecting $1.41 a share.

--Allison Prang contributed to this article.

Write to Paul Ziobro at Paul.Ziobro@wsj.com

(END) Dow Jones Newswires

April 25, 2019 09:44 ET (13:44 GMT)

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