UPS falls short of forecasts on bad weather, costs

DALLAS (AP) - United Parcel Service Inc. reported Thursday that first-quarter profit fell 17% as revenue was flat from a year ago and the package-delivery company ran into higher spending to cope with a series of winter storms.

The results fell short of Wall Street expectations, and the shares tumbled in midday trading.

UPS has been working to upgrade its network as the growth of online shopping puts more pressure on delivery speed. Both ground and air shipping volumes grew during the first quarter, partly on high demand for faster delivery options.

Meeting that growth comes at a cost, however. UPS took a $123 million charge in the quarter for spending on its “transformation” plan to automate some operations and open new facilities.

UPS forecast that second-quarter earnings per share would be flat with the same period last year because of pension-financing costs. But it cited those new, more highly automated sorting hubs for reason to stand by its forecast of full-year earnings between $7.45 and $7.52 per share. Analysts expect $7.52 per share, according to FactSet.

Last year almost all the company’s new facilities opened in the fourth quarter, but this year 30% will be in the second quarter - soon enough to boost earnings in the second half, executives said.

Pinning so much of the full-year guidance on the second half of the year “will likely not resonate well with investors” because it is “placing increasing risk on the always challenging holiday quarter,” Citi analyst Christian Wetherbee wrote in a note to clients.

Atlanta-based UPS said it earned $1.11 billion in the first quarter. Earnings adjusted to exclude transformation spending were $1.39 per share, compared with the average analyst forecast of $1.42 per share.

Revenue was flat at $17.16 billion, and below the analysts’ prediction of $17.77 billion.

Operating profit in UPS’ domestic shipping business dropped $90 million or 12% despite a 2.5% increase in revenue. The company said $80 million of the decline was due to bad weather.

UPS is targeting online shopping, health care and small businesses in a bid to boost its U.S. operation.

Overseas, operating profit fell 11% on 2% less revenue. Chairman and CEO David Abney said uncertainty amid trade tension between the U.S. and China was leading to “softer industry forecasts in the region,” and the company is assuming that global economic growth will be slower than last year, another drag on the package-delivery business.

In midday trading, UPS shares were down $8.08, or 7.1%, to $106.35.

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David Koenig can be reached at http://twitter.com/airlinewriter