UPS Rides E-Commerce Wave to New Highs

UPS was caught off-guard by the crush of online shopping leading up to Christmas and plans to spend a chunk of its tax-cut savings to invest in its package-delivery network.

The company said Thursday that it plans between $6.5 billion and $7 billion of capital spending this year on things like new cargo airplanes and automation in its distribution centers. Executives said they will use one-fifth of the company's expected savings from the new lower corporate income-tax rate on improving the business.

Atlanta-based UPS predicted 2018 adjusted profit between $7.03 and $7.37 per share. That seemed to be about in line with analysts' forecast of $7.21, according to FactSet, but a Cowen and Co. analyst said that excluding pension expenses the forecast was weaker than expected.

In morning trading the shares fell $8.75, or 6.9 percent, to $118.57.

Rapid growth in online shopping is a double-edged sword for United Parcel Service Inc. and rival FedEx Corp. They reap higher revenue but are forced to make major investments in their networks to keep up with demand.

UPS said it delivered 762 million packages during the peak season roughly from Thanksgiving through Christmas, an increase of 7 percent over the previous year and 12 million more packages than the company expected.

UPS said it had to spend $125 million more than it planned to handle the surge in demand.

CEO David Abney said the extra deliveries, especially during peak "cyber week" right after Thanksgiving, came from customers throughout its network, not just a few large retail shippers -- suggesting that the breadth of the surge made it harder to handle.

"We are going to take a good look ... at what we need to do around cyber week" and will announce steps to handle the December 2018 peak later in the year, he said on a conference call with analysts.


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