UPS had a bad holiday season

UPS had a bad holiday peak season and paid the price. (Login required)

United Parcel Service Inc. delivered holiday packages on time this season, but it paid a steep price.
The company surprised Wall Street Friday by announcing that preparations to handle the holiday rush cost it $200 million more than expected. It now expects adjusted fourth-quarter earnings per share of $1.25, well below the $1.47 estimate of analysts polled by Thomson Reuters.
The Atlanta-based company also warned that its 2015 earnings projection is now likely out of reach in part because of pension costs and currency fluctuations.
Right on the heels of the UPS news, rival FedEx Corp. sounded a different note. It touted a new volume record for the holiday season and affirmed its 2015 targets, assuming “moderate economic growth and a modest net benefit from fuel.”
UPS’s stock sank 9.9% to $102.93 in Friday trading as analysts questioned management’s ability to properly forecast and adjust to the new norms of e-commerce. FedEx shares fell 3% to $176.11.
Sanford C. Bernstein & Co. analysts said they were “troubled by the company’s inability to get peak [operating expenses] right during what is increasingly becoming the most important quarter of the year.” UPS, they wrote, “got the service but not the cost, which is going to leave the market wondering if they can only have one or the other.”
UPS was determined this past holiday season to avoid the problems it had the prior year when online shoppers overwhelmed the network with last-minute orders before Christmas. More than a million express packages arrived late, according to Shipmatrix Inc.
Package volume and revenue in the 2014 season were about as planned, but the delivery company overcompensated, Chief Financial Officer Kurt Kuehn said in a statement. “Ultimately, we built an operating plan that would provide superior service if volume levels exceeded expectations.”

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