United Parcel Service Inc.’s profit outlook fell short of analyst estimates, held back by declines in global industrial production and spending to cope with soaring e-commerce deliveries.
- Earnings will be $7.76 to $8.06 a share this year, UPS said in a statement Thursday as it reported earnings. Analysts had predicted $8.07 a share on average, higher than the $7.91 midpoint of the UPS forecast.
Key Insights
- While the forecast was weak, UPS logged a third consecutive quarter of gains in profit margins. That reversed a slide that began at the end of 2016, when rising e-commerce deliveries started jacked up costs. Fourth-quarter operating margin increased to 11.1% from 10.1% a year earlier as the courier emerged unscathed from another record holiday delivery season.
- The cautious outlook could dent confidence in UPS’s $20 billion investment in technology improvements. The company had been winning over investors in recent quarters as the spending binge showed signs of increasing efficiency.
- UPS will continue to invest heavily in technology as a way to improve efficiency, with capital spending rising to about $6.7 billion this year as it bets more on automation to drive down costs. Free cash flow is expected to be $4.3 billion to $4.7 billion this year, compared with about $4.1 billion in 2019.
- Global fallout from the U.S.-China trade war hurt international package demand and prices. UPS said international revenue fell 1.7% to $3.76 billion. Abney earlier this month said a Phase One trade agreement between the U.S. and China should ease some of the pressure on international trade.
