UPS Bulks Up to Meet Web Boom -- WSJ

By Paul Ziobro Features Dow Jones Newswires

Delivery giant is accelerating spending on facilities and planes as volume increases

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This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 27, 2017).

United Parcel Service Inc. plans to spend more on bigger package-handling facilities, planes and other capacity upgrades next year, efforts to keep up with an e-commerce boom that shows no sign of slowing.

The Atlanta-based delivery giant on Thursday said it would add 5 million square feet of capacity in 2018, five times what it added this year, including new fulfillment and sorting centers, larger planes and rolling out Saturday delivery to more markets. UPS expects its spending on such initiatives to be 8% of its 2017 revenue, more than the 6% to 7% of revenue that it had forecast for the coming years.

"We are investing in order to build our network, not just for the next year or two, but for the next generation," UPS Chief Financial Officer Richard Peretz said on a call with analysts. "If we can move a little faster, it's always going to be the best thing we can do."

In an interview, Chief Executive David Abney said that the long-term capital expenditure levels aren't changing but that the company had to speed up the spending because of expected volume increases. "That can cause the numbers to change from one year to the next, but it doesn't cause the overall capex to change over time," he said.

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As more people shop online, UPS, along with FedEx Corp. and U.S. Postal Service, have made investments to accommodate the increasing number of packages moving through their networks. But investors have grown concerned that the spending doesn't seem to be abating anytime soon.

UPS reported a slight decline in its third-quarter earnings, as higher costs from expanding Saturday delivery and recent natural disasters weighed on its U.S. business.

Profit fell slightly to $1.26 billion, or $1.45 a share, compared with the year-earlier period. Revenue rose 7% to $15.98 billion, with the average revenue per shipment, excluding currency translation, up 2.8%.

UPS shares rose 1.6% to $120.46 in Thursday trading.

Delivery companies are raising prices to recoup the network investments they are making. On Wednesday, UPS said it would increase rates 4.9% starting in late December, and it lowered the threshold for oversize package fees, so that a wider range of items would be subject to an extra surcharge.

UPS has previously announced plans to tack on extra fees for most packages shipped during the busiest weeks of the holiday season, which it is implementing for the first time this year. UPS expects to spread the load more evenly during the season, aiming to top 30 million packages delivered on 17 of the 21 delivery days between Thanksgiving and New Year's Eve, up from 11 last year.

Overall, UPS expects to make 750 million deliveries during that period, up 5.6% from last year.

In the months leading up to the holidays, UPS has been working more closely with shippers to anticipate how much space it will need on its delivery trucks and planes. There are now higher stakes in these forecasts, because UPS plans to charge shippers for the space and related labor costs if they go unused.

For the full year, UPS now expects adjusted per-share profit to be $5.85 to $6.10, compared with its earlier forecast of $5.80 to $6.10.

Allison Prang contributed to this article

Write to Paul Ziobro at Paul.Ziobro@wsj.com

Corrections & Amplifications UPS expects its capacity spending to be 8% of revenue this year, more than the 6% to 7% of revenue that it had forecast for the coming years. An earlier version of this article incorrectly said UPS expects capacity spending to be 8% to 9% of 2018 revenue, more than the 7% it had previously forecast. (Oct. 26, 2017)

(END) Dow Jones Newswires

October 27, 2017 02:47 ET (06:47 GMT)