By Eric M. Johnson
(Reuters) - United Parcel Service Inc (N:UPS) on Thursday said its fourth-quarter earnings suffered from higher costs resulting from surging shipping volumes during the peak holiday period, and its shares fell more than 6 percent.
The world's largest package delivery company had faced system bottlenecks and delayed deliveries in the period leading up to Christmas.
Often seen as an indicator of U.S. economic activity and consumer spending, UPS has benefited from a rapid rise in ecommerce but has struggled to bring down the extra costs of making stops at individual residential addresses rather than at businesses.
The company and main rival FedEx Corp (N:FDX) have spent billions of dollars upgrading their networks to handle rapidly rising ecommerce package volumes, leaving investors frustrated over the expense.
UPS said fourth-quarter revenue increased to $18.83 billion from $16.93 billion a year earlier on stronger-than-expected U.S. domestic and international package volumes. That was above Wall Street's estimate of $18.18 billion.
Net income came to $1.1 billion, compared with a year-earlier loss of $239 million.
Adjusted for one-time items, earnings per share of $1.67 edged past analysts' expectations of $1.66.
The company said changes to U.S. tax laws benefited its results by 30 cents per share and helped spur new investments in facilities.
UPS said it would invest $6.5 billion to $7 billion in 2018, including 14 additional Boeing (NYSE:BA) 747-8 aircraft and four new aircraft freighters for its fleet. It also plans 18 new or retrofitted facilities this year, including three U.S. ground hubs, its first major new ones in two decades.
The hubs will be in areas where a surge in holiday online shopping orders overwhelmed its system during last year's peak period, when UPS delivered 762 million packages, surpassing its forecasts.
The company said the bottlenecks cost about $125 million, while investments in new technology and automated capacity expansion cost roughly $60 million.
UPS, which has worked for years to increase its ability to forecast customer shipping demands to handle major package volume spikes ahead of the holidays, has raised shipping rates and added 2018 peak-season surcharges.
The company forecast 2018 adjusted diluted earnings per share at $7.03 to $7.37. Analysts on average are expecting $7.16.
UPS shares, up about 16 percent over the past six months, were down 6.5 percent at $119 in premarket trading.