Festive struggles and pension fees hit UPS in fourth quarter

Struggles with Christmas volumes and a $3bn pension scheme charge hit parcel delivery giant UPS in its fourth quarter — the company recorded a $1.83 per share loss for its latest three months. The world’s largest package delivery company said global deliveries were up 20% in December, and that inclement weather in the United States had put added strain on the network, all leading to higher operating costs.

UPS delivered 20m packages a day during the busy festive season, with total shipments in the 2013 year as a whole growing 3.9% year-on-year to 4.3bn items.

E-commerce pushed fourth quarter volumes up 6% year-on-year worldwide.

Adjusting for the pension charge UPS recorded a seven-cent decline in 2012 fourth quarter adjusted results.

Scott Davis, the UPS chief executive, took the positives from the challenging festive period, stating that retailers selling more goods for home delivery were increasingly using UPS services.

“As a result, we experienced an unprecedented increase in volume, exceeding even our most optimistic plans,” he said.

“The increased volume put a strain on our network, causing delays. In response, UPS deployed additional people and equipment, placing a greater emphasis on service than cost. UPS will make the necessary investments and operational improvements to ensure we meet the needs of the marketplace.”

UPS said it was planning to step up its investment during 2014, accelerating its deployment of new technology including more than $500m of increased investment in capacity expansion and hub modernisation.

Q4

UPS saw its domestic package revenue grow 4.2% year-on-year in the fourth quarter, to $9.3bn, on the back of a 5.6% increase in daily package volumes.

This growth was largely driven by deferred services and ground packages, which were up 8% and 5.8% respectively, with customers choosing lower-cost delivery over faster transit times.

UPS saw its US domestic operating profits down $178m on last year’s fourth quarter, to $1.2bn, as compensation for delayed deliveries and weather impacts added to the costs, along with the 30,000 extra temporary workers the company had to take on over Christmas to help with the volume surge.

Pension charges saw the US domestic business making a $1.8bn loss in the fourth quarter on a reported basis.

International revenue was up 5.3% to $3.4bn, with daily package volume up 8.8% year-on-year. Export products saw 9.5% growth per day, driven by 13% growth in Europe and significant Asia-to-Europe growth.

Non-US domestic products grew 8.2% year-on-year, with strong growth in Poland, Italy and Canada.

Adjusted international operating profits improved 7.6% to $537m, with operating margin up 30 basis points compared to last year, to 15.9%.

Pension charges saw the International division making a $442m operating loss on a recorded basis, however.

The UPS supply chain and freight division sugared declines in its freight forwarding unit, which meant revenue fell 5.8% to $2.3bn in the quarter. Adjusted operating profit was flat compared to the last quarter of 2012. The pension charges meant there was a $541m operating loss for the quarter.