UPS: Last-Minute Online Shopping Hurt 4Q Profit

UPS may be forced to change the way it plans for the year-end shopping season, after December shipping problems took a bite out of fourth-quarter earnings.

The company said Friday that it took “extraordinary” steps to meet year-end demand, including hiring 85,000 seasonal employees — 30,000 more than planned.

But the company’s network of brown trucks and planes was overwhelmed by what it termed “an unprecedented level” of online shopping, including “a surge of last-minute orders.” Bad weather and a shorter shopping season were also factors, it said in a news release. Company officials declined interview requests.

Analysts said the company will make changes, including higher last-minute prices to smooth out the peak caused by the final rush of shopping just before Dec. 25.

Online shopping is good for UPS, as customers count on delivery companies to get those packages where they are supposed to go on time. But volumes were so high last month that hundreds of thousands of packages didn’t get to their destinations before Dec. 25 — UPS hasn’t disclosed the exact number. Amazon.com offered shipping-charge refunds and a $20 credit for some customers affected by UPS delays.

On Friday, UPS said that it delivered a record 31 million packages on Dec. 23. That peak, however, came six days later than UPS had planned, and it was 7.5 percent more packages than the company had expected on the busiest day of the season.

Jim Corridore, an analyst with S&P Capital IQ, suggested the company learned a lesson.

“We think UPS did a poor job forecasting the holiday season, but we expect improved readiness this year as online shopping continues to grow,” he said in a note to clients. Online shopping, he added, “is a positive trend, but UPS needs to do a better job capitalizing upon it.”

Kevin Sterling, an analyst with BBT Capital Markets, said UPS had to catch up after icy weather delayed early-December deliveries, only to get slammed by a wave of late online shopping.

“I think they’ll push through a peak surcharge — you’ll pay more if your online order is after, say, December 20,” Sterling said in an interview. “They’ve got to change that customer behavior of waiting until the last minute.”

Ben Hartford, an analyst with Robert W. Baird & Co., said UPS will likely impose “variable pricing” and make improvements to its network. “I’d be surprised if we saw these kinds of problems next time,” he said.

Stifel, Nicolaus & Co. analyst David Ross said that UPS will probably hire more seasonal workers and arrange for more backup shipping capacity next year-end shopping season.

UPS executives are expected to provide details about future plans when the Atlanta-based company reports fourth-quarter results on Jan. 30.

United Parcel Service Co. said Friday that fourth-quarter profit will be $1.25 per share. Analysts surveyed by FactSet had been expecting $1.43 per share. The company lowered its forecast of full-year, 2013 profit to $4.57 per share, after previously predicting $4.65 to $4.85 per share. It stood by its 2014 outlook that earnings per share will grow between 10 percent and 15 percent over last year.

Shares dipped 58 cents to $99.91 at the close, after falling as low as $97.10 earlier in the day.