UPS Confirms Lower Than Expected Fourth-quarter Results

After announcing that expected fourth-quarter results would be below expectations last month, UPS confirmed those numbers Tuesday with its year-end numbers.

The $1.25 per share for the fourth-quarter's adjusted diluted earnings originally was predicted to fall between $4.90 and $5.00—a 7 to 9 percent increase over 2013 results. Package volume and revenue results met expectations, so the change resulted from the operating profit being negatively impacted by higher than expected peak-related expenses.

"Clearly, our financial performance during the quarter was disappointing," David Abney, UPS CEO, said in a Jan. 23 release that noted the expected decrease. "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."

UPS delivered 1.3 billion packages during the fourth quarter and 4.6 billion throughout the year—a 8.1 and 6.8 percent increase over the same time period in 2013, respectively. In December alone, UPS delivered 572 million packages worldwide. It experienced a 12 percent increase in both Cyber Monday and Peak Day (Dec. 22) deliveries, and Peak Day scheduled deliveries exceeded 35 million packages—more than 100 percent above an average day.

This comes a year after about 1.3 million parcels were not delivered by Christmas Eve. UPS spent $500 million last year on network improvements, according to Reuters. The company also hired 100,000 temporary workers for the holiday season. Still, its fourth-quarter adjusted operating profit for its U.S. domestic package division dropped 5.3 percent to $1.1 billion and operating expenses increased more than $200 million due to higher than anticipated peak-related costs, such as decreased productivity, higher contract carrier rates, and additional overtime and training hours, UPS noted in its fourth-quarter results.

As a result, UPS will add surcharges to residential package delivery, adding the costs over several years when contracts with major customers are renegotiated, Abney said in Tuesday's conference call, according to Reuters.

"These pricing strategies will be designed to ensure we are properly compensated for the value we provide," Abney said.

The company expects growth in 2015, predicting the year's diluted earnings per share to be $5.05 to $5.30—a 6 to 12 percent increase over 2014 results.

"This year will be one of continuous improvement and advances in strategic initiatives that have great potential for the company," said Kurt Kuehn, UPS chief financial officer. "E-commerce growth, operations technology implementation, emerging market expansion and industry specific solutions will provide momentum for UPS as we move throughout the year."