October 26, 2017 / 12:26 PM / a year ago

UPS hit by hurricanes but rosy on holiday shipping

(Reuters) - United Parcel Service Inc (UPS.N) reported a slightly lower quarterly net profit on Thursday due to U.S. hurricanes and higher costs for Saturday delivery but lifted its full-year forecast, citing global shipping strength and expectations for the crucial holiday season.

FILE PHOTO - A United Parcel Service (UPS) truck on delivery is pictured in downtown Los Angeles, California October 29, 2014. REUTERS/Mike Blake/File Photo

The world’s largest package delivery company, often seen as a bellwether of U.S. economic activity, expects to make about 750 million deliveries globally between the U.S. Thanksgiving holiday and New Year’s Eve, about 40 million more than last year, it said.

UPS CEO David Abney told analysts on a conference call his optimism for 2018 was growing on the strength of global trade, U.S. consumer spending, and proposed tax cuts.

“Obviously the consumer is still driving the economy and especially for e-commerce we think that is just going to continue to grow,” Abney said. “There is also optimism about tax reform and what that can do to stimulate the economy.”

The Atlanta-based company’s quarterly performance met Wall Street forecasts. Revenue at its core U.S. domestic package service rose 3.9 percent from a year ago to $9.65 billion, driven by deliveries of online purchases, it said.

Shares were up 1 percent at $119.77 in early trading.

UPS said it took a $50-million hit from hurricanes across the United States in August and September, and higher costs from Saturday delivery.

UPS’ international segment produced a record third-quarter operating profit of $627 million, up 8.9 percent, as a result of a strong global economy and new business following a June cyber attack on rival FedEx Corp’s (FDX.N) Dutch unit.

UPS CFO Richard Peretz told analysts capital expenditures are likely to be around 8 percent of sales for 2018, higher than earlier forecasts of 6-7 percent, as the company adds 5 million square feet of capacity versus 1 million added in 2017.

UPS and FedEx have spent billions of dollars upgrading their networks to handle rapidly rising e-commerce package volumes, particularly in the weeks leading up to Christmas, leaving investors frustrated over the expense.

UPS has also unveiled a number of new surcharges in recent years, seen as a way to manage the higher costs associated with e-commerce and unwieldy packages.

UPS said it would raise rates across many of its U.S. services by 4.9 percent from Dec. 24, and will also apply a new 2018 peak season surcharge for handling of large or awkward packages of $3.15.

UPS posted third-quarter net income of $1.26 billion or $1.45 per share, compared with $1.27 billion or $1.44 per share a year earlier, and quarterly revenue of $15.98 billion from $14.93 billion. Analysts expected earnings per share of $1.45 and revenue of $15.6 billion.

The company said it expects full-year earnings per share in a range from $5.85 to $6.10. Analysts expect $6.01 per share.

Reporting by Eric M. Johnson in Seattle; Editing by Chizu Nomiyama and Nick Zieminski

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