UPS has been racing to keep up with demand for home delivery that has exploded with the revolution in e-commerce. Despite the positive attitude given to Amazon.com for its low profit, fast growth strategy, the Wall St. crowd has looked askance at UPS for daring to spend money on investing in its business.
UPS is working hard to keep up with the major secular shift in demand, but investing money in expanding its facilities has eaten into earnings. The short-term focused Wall St. crowd is upset. Paul Ziobro writes:
United Parcel Service Inc. UPS -2.54% will spend up to $7 billion this year to upgrade its delivery network, adding jumbo jets and automating facilities, as it tries to fix service issues that hurt profits during its latest quarter.
The network came under pressure during the past holiday season, as UPS delivered 762 million packages during the peak period, more than its initial forecast of 750 million. The company said Thursday it incurred an extra $125 million in costs as it scrambled to lease planes and trucks to handle the extra volume and clear backlogs that hit the network during the week after Thanksgiving.
The added costs caused UPS operating profit to fall 5.5% in its large domestic segment during the fourth quarter, even as the extra business and higher prices boosted revenue 8.4%. Overall for the period, UPS operating profit, excluding a pension accounting charge, rose 3.2% while revenue surged 11% to $18.83 billion.
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Jeremy Jones, CFA
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