UPS 3Q profit up 1 per cent as US revenue increases

DALLAS – UPS said Thursday that its third-quarter profit inched higher on growing revenue in the U.S. and a more profitable international delivery business.

The package-delivery giant is heading into biggest test of the year, the holiday season. UPS expects to deliver more than 700 million packages between Thanksgiving and New Year’s Eve, about 100 million more than last year.

The third-quarter profit was roughly in line with Wall Street expectations but revenue beat the forecasts.

CEO David Abney said that even with only moderate economic growth UPS has “good positive momentum … and we expect to have a real good fourth quarter.” The effect of the economy on UPS continues to be mixed, he said.

“Consumer (spending) is still going well, and e-commerce especially,” Abney said in an interview. “The industrial side is not as good as we would like.”

UPS plans to add about 95,000 seasonal workers — the same as last year — to handle the crush of orders filled by online shoppers. The company believes it can hold holiday hiring flat by using more automation to scan and sort packages more quickly and by opening temporary sorting hubs.

The company is wary about adding too many temporary workers. After a disastrous 2013 holiday season when many packages were delivered late, the company beefed up staffing aggressively.

“They hired way too many part-time associates and then they didn’t have the volume to justify that,” said Logan Purk, an analyst for Edward Jones. “It was so inefficient that (profit) margins took a big hit.”

Purk said he would be watching closely for signs of such inefficiency this season but was optimistic because UPS appeared to get things right last year.

CFRA Research analyst Jim Corridore said he upgraded UPS shares from “buy” to “strong buy” on the expectation that it will benefit from online sales and record holiday volumes.

For the third quarter, United Parcel Service Inc. said it earned $1.27 billion, up 1 per cent from a year earlier. Revenue rose 4.9 per cent to $14.93 billion, beating analysts’ forecast of $14.72, according to FactSet, but costs rose at a 5.2 per cent clip.

The earnings of $1.44 per share matched the forecast of 20 analysts surveyed by FactSet and were a penny better than the average estimate of 11 analysts surveyed by Zacks Investment Research.

UPS stuck with its earlier forecast of full-year earnings between $5.70 and $5.90 per share.

Revenue in the U.S. delivery business rose nearly 5 per cent as UPS continued to benefit from the growth in online shopping. Revenue per package, however, grew only 1 per cent, and operating profit was about flat.

Operating profit was smaller but grew 14 per cent in the company’s international business, as an increase in packages offset lower revenue per piece.

UPS shares fell 95 cents to $107.66 in midday trading Thursday. Its shares are up more than 4 per cent in the past year.