UPS' 4Q results fall short of Wall Street expectations

DALLAS (AP) -- The growth in online shopping means more packages for UPS to deliver, but dispatching a massive fleet of trucks throughout American residential neighborhoods every day is creating an efficiency problem for Big Brown.

The company's results in the fourth quarter, which includes the critical Christmas shopping season, fell short of Wall Street expectations, and UPS gave a lackluster forecast for 2017.

The shares tumbled $7.05, or 6 percent, to $109.98 in midday trading.

UPS said 55 percent of fourth-quarter deliveries — and 63 percent in December — were directly to consumers; both records. It's cheaper to deliver a truck full of boxes to one store than make a string of stops at residential addresses, so the shift weighed on the company costs despite the company's investments in automation and efficiency.

"We knew (business-to-consumer delivery) was going to continue to grow, it's just the pace grew so fast ... that we're going to have to ramp up those investments, we're going to have to ramp up the strategy," CEO David Abney said in an interview. "We're going to have to reduce the cost per package."

UPS is studying how it might increase the number of packages per stop and raise more revenue per piece. It could charge retailers more for large, unexpected shipments during peak season, for shipments that go mostly to rural areas, or even by certain days, Abney said while stressing that no decisions have been made.

Abney said in some cases UPS charged retailers more for large shipments the week before Christmas because they did not notify the company in advance.

Cowen and Co. analyst Helane Becker said weakness in UPS' domestic-package business by the shift to online shopping will lead to more questions about growth of Amazon.com Inc.'s delivery network and how UPS will grow despite a "weak industrial market."

UPS officials and some analysts have maintained that it would be difficult for Amazon to challenge UPS and rival FedEx Corp. in the delivery business, but Amazon has been adding planes and trucks to its network.

Atlanta-based UPS predicted that 2017 earnings, excluding things like pension charges, will be between $5.80 and $6.10 per share. Wall Street was expecting $6.15 per share, although UPS said analysts might not have accounted for an estimated loss of about 30 cents per share due to currency-exchange rates.

The company is expecting modest economic growth — slightly faster in Europe and Asia than in the U.S.

Abney said UPS would benefit from Trump administration proposals to cut corporate taxes and increase infrastructure spending — the latter might reduce delays, he said.

United Parcel Service Inc. said Tuesday that it lost $239 million in the fourth quarter because of accounting adjustments to the value of pension assets and retiree liabilities.

Excluding those items, UPS said it would have earned $1.63 per share. That, however, still missed the mean forecast of $1.69 per share from 24 analysts surveyed by FactSet and $1.68 from 11 analysts polled by Zacks Investment Research.

Revenue was $16.93 billion, which was below the $17 billion predicted by analysts in the FactSet survey.

UPS shares began the day up 2 percent in 2017, about in line with the performance of the Standard & Poor's 500 index. The stock had gained 29 percent in the last 12 months.