UPS issues profit warning after excessive peak season spending
UPS issued a profit warning on Friday, stating that “underperformance” in its business in the United States have hit its fourth quarter earnings. The Atlanta-based delivery giant said that while volumes and revenues were “in line with expectations” during the peak season overall, its costs were $200m higher than expected.
In particular, the company said the “extreme” spikes in volumes around the Cyber Monday retail sales event on 1 December 2014, and on the busiest day of the year, 22 December 2014, required additional capacity including increased overtime and training hours.
On other days during the run-up to Christmas, UPS said it actually saw demand falling below expectations, resulting in a “sub-optmized” network. UPS had sharply increased its festive hiring to 95,000 seasonal employees in the 2014 peak season, after suffering capacity limitations the year before. Friday saw the firm admitting it “overshot the mark” with its seasonal hiring.
A port dispute in the US West Coast also disrupted the UPS network, adding to costs for the company.
David Abney, UPS chief executive officer, said: “Clearly, our financial performance during the quarter was disappointing.
“UPS invested heavily to ensure we would provide excellent service during peak when deliveries more than double. Though customers enjoyed high quality service, it came at a cost to UPS. Going forward, we will reduce operating costs and implement new pricing strategies during peak season,” Abney added.
Earnings
UPS is expecting to announce its full fourth quarter results on 3 February 2014. Share prices fell on Friday as the company said earnings would be closer to $1.25 for the fourth quarter, than the $1.47 forecast by some analysts.
Chief financial officer Kurt Kuehn said the company would be announcing that the fourth quarter adjusted earnings were “essentially flat with last year”.
He said that after a difficult 2013 peak season, UPS “overshot the mark” in preparing for the 2014 peak season, resulting in the underutilisation of the network during some peak days.
“Ultimately, we built an operating plan that would provide superior service if volume levels exceeded expectations. This capacity was needed to provide quality service during a much stronger than expected Cyber Monday,” he explained.
“With anticipation of higher volume continuing, we were hesitant to cut back. And, over the course of the next couple of weeks, shipments were lower than we expected.”
International operating profit were also below expectations during the fourth quarter for UPS, but the company said that was mainly due to one-off charges and currency movement.
UPS said it was expecting 2015 to see “solid growth” across all business segments, although it will be dealing with $180m in increased pension costs and $50m in currency impacts.
The company said 2015 earnings per share would be “slightly less” than its long-term target of 9-13% growth.
