United Parcel Service Inc announced on Friday its fourth-quarter results were hit by higher costs and lower demand during the year-end holidays.
The worlds biggest parcel delivery company, said it had spent too much on its efforts to avoid the situation in late 2013.
At that time the Atlanta-based company said last-minute orders were higher than projected and UPSs network could not cope with the demand, resulting in delayed deliveries and lower profits.
In 2014, UPS invested heavily in improvements to ensure that the company could meet demand during the peak Holiday season, when deliveries more than double. UPS hired additional employees, while also boosting its sorting capabilities and automation process.
UPS spent around $500 million on enhancements, $200 million more than previously expected.
The move paid off during Cyber Monday and peak day December 22, when package volumes hit extreme levels, UPS said. However, the company admitted it misjudged demand again and orders were less than expected on other days during the period, resulting 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,” UPS said in a statement.
The company projected fourth-quarter earnings per share to stand at $1.25 compared to an estimate compiled by Thomson Reuters of $1.47.
UPS also said it will take a non-cash charge of $670 million related to its discount rates used to calculate company-sponsored pension liabilities and another non-cash charge of $22 million linked to the transfer of certain healthcare liabilities.
Full-year earnings per share are expected to land at $3.28 compared to per-share earnings of $4.61 in 2013 and also down from its previous guidance of between $4.90 and $5.
For 2015 UPS forecast its earnings per share to be “slightly less than its long-term target of 9%-to-13%”, despite projections of solid business growth across all regions. UPS blamed additional pension-related expenses of $180 million and currency headwinds of more than $50 million.
“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,” Chief Financial Officer Kurt Kuehn said.
UPS fell 9.91% on Friday and closed at $102.93, marking a one-year increase of 5.09%. The company is valued at $103.42 billion. According to the Financial Times, the 21 analysts offering 12-month price targets for UPS have a median target of $112.00, with a high estimate of $126.00 and a low estimate of $101.00. The median estimate represents a 8.81% increase from the last close price.
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