UPS’s Q4 hit by high operating costs over the Holiday Season

Source UPS / www.transportintelligence.com / January 23rd, 2015

UPS has announced that company earnings for 2014 were lower than previous guidance, primarily due to the underperformance of the US Domestic segment over the holiday season. While package volume and revenue results were in line with expectations, operating profit was negatively impacted by higher than expected peak-related expenses.

Full-year 2014 adjusted diluted earnings per share is expected to be $4.75, up 3.9% over 2013 adjusted diluted earnings per share of $4.57. However on a GAAP basis, full-year 2014 diluted earnings are expected to be approximately $3.28 per share, compared to $4.61 in 2013. 

"Clearly, our financial performance during the quarter was disappointing," said David Abney, UPS Chief Executive Officer. "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."

Peak plans were designed to provide high quality service for volume surges. The extra capacity was deemed necessary to process the extreme spike in package volume on Cyber Monday and peak day, December 22. However, demand was less than expected on other days. This resulted in a sub-optimized network during peak season. A decline in productivity, increased contract carrier rates, as well as costs associated with overtime and training hours contributed to the excess cost. In addition, the network was somewhat disrupted by volume fluctuations caused by the West Coast port dispute.

"The rapid expansion of e-commerce has created a complex operating environment during peak season," said Kurt Kuehn, UPS Chief Financial Officer. "UPS is in the early stages of a multi-year initiative to adapt our operations to these market challenges. We are making progress, but this quarter reflects that more work needs to be done."

International adjusted operating profit was also below expectations, primarily due to non-recurring charges and negative currency comparisons. Meanwhile, the Supply Chain and Freight segment performed in line with guidance.