UPS Pressured By Rising Costs, Which Are Outpacing Revenue Growth

By Joshua Jamerson Features Dow Jones Newswires

United Parcel Service Inc. still has work to do to show that it can preserve profits amid rising delivery costs, which bit into the bottom line even as higher rates and surcharges boosted revenue.

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The Atlanta-based company is shipping more packages -- its average daily package volume rose 4% in the latest quarter -- and is charging more to do so. Last year it raised rates, adding higher surcharges for large packages and a new way for calculating fuel surcharges. Total revenue at UPS rose 6.2%.

But costs are rising at a faster pace. Shipping has become more expensive, in part because of the added costs of delivering e-commerce orders to homes. This has put pressure on UPS to try to keep costs under control by using technology such as route-optimization software. "We are accelerating investments to create the industry's leading smart global logistics network and value-creating portfolio," Chief Executive David Abney said in prepared remarks Thursday.

Total operating expenses in the quarter jumped 7.4%, denting profits from several of its segments such as the U.S. domestic package unit, where operating profit fell 2.4%. UPS was buoyed by a 22% climb in operating profit in its supply chain and freight division, but company still posted a 2.1% drop in overall operating profit.

Mr. Abney said that "technology solutions continue to deliver efficiencies."

Over all, UPS earned $1.16 billion, which is about 2.4% higher than its year-ago profit of $1.13 billion. The comparison was helped by a 12.5% smaller income-tax expense in the latest quarter. On a per-share basis, the company said it earned $1.32. Analysts, polled by Thomson Reuters, had expected $1.29 a share.

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Revenue of $15.32 billion beat analysts projections for $15.17 billion in revenue.

Shares, which have fallen more than 7% in the past three months, were inactive premarket.

Write to Joshua Jamerson at joshua.jamerson@wsj.com

(END) Dow Jones Newswires

April 27, 2017 08:41 ET (12:41 GMT)