Seasonal Expenses Dent UPS Results -- Update

By Angela Chen 

United Parcel Service, Inc. warned of weak fourth-quarter results as higher-than-expected seasonal expenses and currency headwinds dragged down earnings.

After a disastrous 2013 holiday season, in which millions of packages were delivered late, UPS added extra capacity to accommodate the spike in package volume on the two peak days: Cyber Monday and Dec. 22.

However, demand was less than expected on other days, leading to $220 million of excess operating costs tied to contract carrier rates and overtime and training hours.

Shares dropped 9% premarket and had risen 17% over the past 12 months through Thursday's close.

Chief Executive David Abney called the fourth-quarter results "disappointing" and said the company plans to reduce operating costs and implement new pricing strategies.

The ongoing West Coast port dispute, which has affected shipments for multiple retailers, also caused problems due to volume fluctuations.

International operating profit was also below expectations, mostly due to unfavorable currency rates.

For the fourth quarter, the Atlanta-based shipping giant expects earnings, excluding special items, of $1.25 a share, well below the $1.47 that analysts polled by Thomson Reuters had predicted.

For the full year, earnings are expected to be $3.28 a share, or $4.75 excluding special items. Earlier, the company had predicted a profit of $4.90 to $5 a share.

For the current year, the company expects earnings growth to be less than its previously announced target of 9% to 13%, due to declining interest rates, dropping fuel prices, increased pension expense of $180 million and currency headwinds.

Write to Angela Chen at [e-mail]

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