UPS freezing hiring and cutting costs after volume weakens
UPS Inc., the world’s largest shipping carrier, said it is implementing a management hiring freeze and will work harder on reducing costs as it reported disappointing fourth-quarter results that included weaker-than-expected domestic ground volume.
The Atlanta-based company also said Thursday that while it expects strong earnings and overall growth in 2005, its U.S. ground volume is only expected to rise 2 percent to 3 percent, which would be below the 3.5 percent the economy is projected to grow this year.
UPS shares fell USD1.49, or 2 percent, to close at USD74.01 in Thursday trading on the New York Stock Exchange. Its shares have fallen about 15 percent since Dec. 9, when the stock closed at USD87.53. It traded as high as USD89.10 on Dec. 10.
Chief financial officer Scott Davis said that in addition to the management hiring freeze, UPS will reduce discretionary spending and reassess its priorities. He said he expects that initiative to save UPS USD200 million this year.
“UPS is going to act to make this company better going forward,” Davis said.
Some analysts have suggested that UPS has been hampered by increasing competition from other players, including FedEx and the Postal Service. Davis acknowledged that FedEx has improved its network, but he said he believes UPS’s network is still dominant.
In a conference call with analysts, Davis said UPS did not do as well in the quarter as it could have in managing the business as it lagged the market with its 1.5 percent growth in domestic ground volume. Still, he said UPS had a strong year and has the ability to improve.
“While this was a challenging quarter, it was just that – one quarter,” Davis said.
UPS said it earned USD866 million, or 76 cents a share, for the three months ending Dec. 31, a slim 1.2 percent increase compared with its profit of USD856 million, or 75 cents a share, for the same period a year ago. Excluding one-time items, UPS said it earned USD933 million, or 82 cents a share, in the quarter. Analysts surveyed by Thomson First Call were expecting earnings of 76 cents a share.
Earlier this month, UPS had warned that its fourth-quarter earnings would fall short of previous estimates because of higher operating costs and weaker-than-expected domestic package volume during the last week of the 2004.
Revenue in the October-December period was USD9.84 billion, a 10.2 percent increase from the USD8.93 billion recorded a year ago.
In revising its estimates, UPS had said it saw a significant drop in U.S. domestic volume during the period from Christmas to New Year’s Day.
UPS also had said that higher operating costs were due to the severe weather that struck the Midwest during the height of its peak season operations.
Going forward, UPS said Thursday that for the first quarter of 2005 it is expecting earnings per share in the range of 70 cents to 75 cents. Analysts are expecting earnings of 75 cents.
Davis reiterated the company’s expectations that total earnings per share for 2005 will grow 13 percent to 17 percent over the adjusted earnings reported for 2004. That would be in the range of analysts’ expectations of 2005 earnings of USD3.36 a share.
For all of 2004, UPS said it earned USD3.33 billion, or USD2.93 a share, compared with a profit of USD2.90 billion, or USD2.55 a share, for the prior year. Twelve-month revenue was USD36.58 billion, compared with USD33.49 billion in 2003.
