Stung by 2013's crush, UPS gears for holiday

United Parcel Service driver Marty Thompson steps off a truck while making deliveries in Cumming, Ga., in June. UPS on Tuesday reported a second quarter profit of $454 million, or 49 cents a share, down from $1.07 billion, or $1.13 a share, a year ago.

United Parcel Service driver Marty Thompson steps off a truck while making deliveries in Cumming, Ga., in June. UPS on Tuesday reported a second quarter profit of $454 million, or 49 cents a share, down from $1.07 billion, or $1.13 a share, a year ago.

Wednesday, July 30, 2014

ATLANTA -- Shipping company UPS said Tuesday that the company is willing to sacrifice some short-term profits to avoid a repeat of its Christmastime failure to deliver packages on time.

Atlanta-based UPS said it will spend $175 million on improvements that include beefed-up operations on the day after Thanksgiving, more sorting facilities and sped-up deployment of software designed to help drivers find the quickest routes to destinations.

"As we've said, 2014 is the year of investing for the customer," said Chief Executive Officer Scott Davis in a statement. "We are providing new capabilities and expanding capacity to ensure UPS meets the rapidly growing needs of the marketplace."

Preparations are already underway for the peak season, David Abney, who will become chief executive Sept. 1, said on a conference call with analysts. The company may evaluate pricing, with a seasonal surcharge for Christmas shipping "possible" if costs persist next year, Davis said on the call.

Last month UPS said it will begin charging for ground-shipped packages by size, not just weight, as it seeks to increase revenue and reduce costs. The changes won't come until after the holiday crunch.

UPS already uses so-called dimensional pricing for packages carried in its air network and larger pieces shipped by ground. Rival FedEx Corp. is shifting to a similar charging system, as it, too, seeks to improve profitability of business-to-consumer shipments.

UPS was caught by surprise during the Christmas season by a big increase in online shopping and a crush of last-minute orders by shoppers who jumped on offers of free shipping. The company hired extra workers to handle the rush, but some gifts arrived late.

Reflecting the spending increase, UPS lowered its full-year outlook for adjusted earnings to $4.90 to $5 a share. It previously expected to earn around $5.05 a share. UPS also reported quarterly earnings that fell short of Wall Street estimates, although revenue was greater than expected.

Shares of United Parcel Service Inc. fell $3.80, or 3.8 percent, to close Tuesday at $98.86.

Abney said UPS is working with suppliers on a joint demand forecast and adding 50 new sorting facilities in existing buildings, increasing capacity by 5 percent. UPS has traditionally operated a limited service on the day after Thanksgiving, a giant shopping day known as Black Friday. This year, it will move to a full schedule. Abney said that will cost UPS more money but the change will pay for itself in the long run.

"It smooths out the Cyber Week demand," Abney said, referring to the influx of packages from online shoppers.

For the second quarter, net income declined to $454 million, or 49 cents per share, from $1.07 billion, or $1.13 per share, in the same quarter a year earlier. UPS took a charge of $665 million for the transfer of post-retirement liabilities for certain Teamster employees to defined contribution health care plans.

Adjusted earnings were $1.21 per share. The average per-share estimate of analysts surveyed by Zacks Investment Research was for profit of $1.24.

The company said revenue climbed 5.6 percent to $14.27 billion from $13.51 billion in the same quarter a year ago, and beat Wall Street forecasts. Analysts expected $14.07 billion, according to Zacks.

Information for this article was contributed by The Associated Press and by Michael Sasso of Bloomberg News.

Business on 07/30/2014