UPS slashes spending, halts stock buybacks

"Don't know that we'll ever get back to what we'd call the old normal, CEO says

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United Parcel Service Inc. is doing more but making less.

The delivery giant is logging higher revenue as millions of homebound Americans shop online for everything from toothpaste to trampolines during the coronavirus pandemic. At the same time, the more profitable business of delivering big shipments to offices and stores has dried up since nonessential businesses were forced to shut their doors.

As the pandemic shocked the economy and upended consumer habits, UPS absorbed the blow, executives said. Home deliveries in UPS's main U.S. segment rose to nearly 70% by the end of March, compared with around 54% over all of last year. Operating profit for that business fell more than 40%.

"We were not able to fully offset the unprecedented and swift changes in market demand and mix," UPS Chief Executive Officer David Abney said Tuesday.

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The company said drivers are traveling 10% further and making 15% more stops on their daily routes to keep up with rising demand for home deliveries. Those packages are also 33% lighter, generating less revenue than the bulkier shipments that would go to businesses.

UPS's first-quarter profit fell about 13% even as revenue rose more than 5%. In the company's U.S. package business, revenue rose 9.3%, with volume up 8.5% from the same period last year.

To safeguard its finances, the company is cutting $1 billion from its capital-spending budget in 2020 and suspending stock buybacks for the year. It said it is unable to provide revenue and profit forecasts due to uncertainty about the impact of the pandemic and how long it will last.

"I don't know that we'll ever get back to what we'd call the old normal, but we're not ready to declare what we see today as the new normal either," Mr. Abney said.

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Shares fell nearly 5% in late-morning trading Tuesday.

UPS has spent billions of dollars in recent years to upgrade its delivery network with more sortation capacity and automated facilities so that it can handle delivery surges, like during the holiday season. The company said those investments helped it operate more efficiently as the pandemic-spurred peak season popped out of nowhere.

Stocks in this Article

UPSUNITED PARCEL SERVICE INC.
$170.50
-2.19 (-1.27%)
FDXFEDEX CORPORATION
$288.30
-3.38 (-1.16%)

The reduction from its previous capital-expenditure budget of $6.7 billion won't affect its goal to move nearly all of its packages through automated facilities by 2022. Instead, UPS will adjust some building projects and delay some vehicle purchases.

The surge of business also was driven by large shippers, UPS said, which generally can command bigger shipping discounts and better rates than the small- and medium-size businesses that both FedEx Corp. and UPS have been courting heavily to try to secure better profit margins.

UPS has grown closer to Amazon.com Inc. in recent years, generating around 12% of revenue from the online-retailing giant last year. The increasing reliance on Amazon has concerned some analysts who see that business as eventually being at risk as the e-commerce giant develops a larger delivery force.

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UPS will soon have new leadership to navigate the changing world. In June, Mr. Abney will be succeeded by Carol Tomé, a longtime UPS board member and Home Depot Inc.'s former chief financial officer.

Net income fell to $965 million, or $1.11 a share, for the first quarter, compared with $1.11 billion, or $1.28 a share, in the year-ago period. Excluding nonrecurring items, adjusted earnings per share fell to $1.15 from $1.39, below the FactSet consensus of $1.24.

Revenue rose 5.1% to $18.04 billion, above the FactSet consensus of $17.27 billion. While domestic revenue rose, international revenue fell 2.2%.