UPS Q4 Earnings: Shares Fall On Higher Anticipated Costs In The Future

by Trefis Team
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UPS (NYSE:UPS) managed to report a rather strong earnings this time around. The company managed to beat both, the earnings and revenue expectations. That said, earnings were offset by increased costs in the quarter on heavy system bottlenecks and delayed deliveries. Given the heavy surge in package volume, UPS has also decided to spend heavily in the immediate future to upgrade its delivery network. This news sent investors into a selling frenzy. Since the conference call, the company’s stock price has fallen by over 8%.

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  • Probably the most worrying news coming out of this quarter is, as mentioned before, the company’s decision to improve its delivery network in an effort to make sure it can handle the substantial rise in e-commerce shipments.
  • To put this into perspective, during the holiday season alone, UPS delivered a record 762 million packages, which represents a growth of 8% year over year. If e-commerce shipments continue to grow in the low double-digit range, without proper infrastructure, the company can suffer terrible consequences.

  • These expenses are expected to take a toll on earnings in the coming quarter. For FY 2018, the shipping pioneer gave guidance  to earn between $7.03-$7.37.

  • Like most U.S. companies, UPS has also benefited from the recent tax cut. The company hopes to use this extra cash on capital purchases. For example, it has decided to buy 18 aircraft: fourteen 747 planes and four Boeing 767 freighters.

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