UPS aiming to step up deliveries

It’s investing $100 million in wake of holiday-service lag

In this Tuesday, Jan. 28, 2014 photo, a UPS driver returns to his truck after making a delivery in Mt. Lebanon, Pa. UPS reports quarterly earnings on Thursday, Jan. 30, 2014. (AP Photo/Gene J. Puskar)

In this Tuesday, Jan. 28, 2014 photo, a UPS driver returns to his truck after making a delivery in Mt. Lebanon, Pa. UPS reports quarterly earnings on Thursday, Jan. 30, 2014. (AP Photo/Gene J. Puskar)

Friday, January 31, 2014

United Parcel Service Inc. said Thursday that it will spend more than $100 million to improve peak-period service after a late surge in online Christmas shopping caused missed deliveries that increased costs.

With the delivery volume growth rate during the Christmas period almost twice what UPS had projected, the company had to add 30,000 more workers than planned, increasing fourth-quarter expenses by as much as $150 million, Chief Executive Officer Scott Davis said during a conference call. Some packages still didn’t arrive at their destinations by Christmas, causing refunds that sliced quarterly revenue by $50 million.

“We did not meet the service standards UPS historically does at Christmas,” Davis said. “We will make the necessary investments to ensure we effectively manage peak demand in the future.”

UPS reported an 8.5 percent drop in fourth-quarter earnings. It is expediting the introduction of technology that helps make delivery routes more efficient and reduces miles driven; improving communication with shippers; and stepping up expansion of some facilities. The Atlanta-based company’s revenue for the quarter trailed analysts’ estimates.

“We are very confident we have put a plan in place that’s going to take care of the volume in 2014,” said Chief Operating Officer David Abney, who is leading the company’s evaluation of the peak crisis.

Analysts expect UPS will make changes, including higher charges for last-minute deliveries, to avoid the same kind of last-minute crush next Christmas.

The shares rose 45 cents, or0.5 percent, to close Thursday at $95.78. They fell 9.3 percent this year through Wednesday, as the Standard & Poor’s 500 Index declined 4 percent.

Last-minute promotions by online retailers “drove extraordinary volume growth” in the days before Christmas, Davis said, creating the latest peak day ever for UPS, six days later than expected.

Satish Jindel, president of Pittsburgh-based SJ Consulting Group, has estimated 96 percent of deliveries were on time, with 2.9 million packages arriving after Christmas. He said UPS, FedEx Corp. and others handled about 73 million parcels on Dec. 24.

“It’s not only about capacity,” Abney said. “It’s about increasing our forecasting methods with customers, improving visibility and communications. There will be some operating costs into this year, but it’s going to pay dividends for years to come.”

UPS said fourth-quarter net income was $1.17 billion, or $1.25 a share, compared with adjusted earnings of $1.28 billion, or $1.32 a share, a year earlier, when the company had $3 billion in one-time costs for an increase in pension expenses. Analysts surveyed by Bloomberg had estimated an average of $1.43 before UPS gave preliminary results on Jan. 17.

Sales rose 2.8 percent to $14.98 billion, short of the $15.18 billion average estimate.

The company forecast fullyear profit of $5.05 to $5.30 a share, an increase of 11 percent to 16 percent over 2013 adjusted earnings.

For all of 2013, UPS earned $4.37 billion, or $4.61 per share. Adjusted for special items, UPS earned $4.57 per share, compared with $4.53 per share in 2012.

Information for this article was contributed by The Associated Press.

Business, Pages 27 on 01/31/2014