UPS’s holiday planning backfires

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Last year, UPS spent $500 million to make sure the 2013 holiday season, in which online shopping demand overwhelmed most express companies, would not be repeated. So for 2014, UPS prepared for the onslaught.

It built new facilities, added more holiday staff – including 100,000 temporary employees – and coordinated with retailers for clarity on estimates and deadlines.

But they still lost money. Earnings per share of $1.25 were exactly as they were in 2013.

Logistically, it was a good peak season for UPS. The integrator delivered 1.3 billion packages during the fourth quarter of 2014, with 572 million of those in December, which was an increase of 8.1 percent over the same period in 2013. For calendar year 2014, the company completed delivery of 4.6 billion packages, up 6.8 percent over 2013. 

Additionally, the integrator had a 12 percent increase in both Cyber Monday and peak day deliveries. Peak day deliveries exceeded 35 million packages, more than 100 percent over a typical day.

So what went wrong? UPS reported that higher-than-expected expenses negatively impacted the bottom line. Adding to that, the drops in net income and operating profit were due to discount rates used to calculate company-sponsored pension and post-retirement liabilities, amounting to $670 million, as well as $22 million relating to the transfer of healthcare liabilities.

Nonetheless, UPS chief financial officer Kurt Kuehn, remained optimistic.

“E-commerce growth, operations technology implementation, emerging market expansion and industry-specific solutions will provide momentum for UPS as we move throughout the year,” Kuehn said.

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