More deliveries and higher revenue per package boosted first-quarter profit at UPS; but the company was hampered by rising costs, as it upgrades its network to keep up with online shopping.
United Parcel Service Inc. said Thursday that it earned $1.35 billion in the quarter, up 15 percent from a year earlier.
The results topped analysts’ forecasts, and the shares rose in midday trading.
Revenue grew by 10 percent, with double-digit gains in the Atlanta company’s international and freight businesses, and a smaller pickup in the core U.S. package-delivery unit.
Operating profit fell, however, in the domestic-package business, which UPS blamed on bad weather, the startup of Saturday service, and investments in new facilities and automation to help meet the growing demand for delivery of online purchases by consumers.
CEO David Abney said in an interview that those investments will eventually pay off, but “you put the cost in before you get the benefit.”
“The underlying business performed as expected,” he said. “We were not disappointed in the U.S. operation.”
Analysts continued to caution about “cost creep” at UPS.
“Higher costs continue to pressure earnings,” said Cowen analyst Helane Becker. “We believe this will continue for the rest of 2018, and likely into 2019.”
The company could face higher costs as it continues to negotiate a new contract with union aircraft mechanics. Tim Boyle, president of the Teamsters local that represents the mechanics, said UPS was refusing to honor a promise to share savings from lower income taxes with employees.
UPS and rival FedEx Corp. have benefited from the dramatic growth of online shopping, but delivering all those packages from retailers to consumers has put pressure on their networks, especially around the year-end shopping season. UPS is trying to reduce the cost of delivering to homes, which is more expensive than delivering to businesses, because homes are farther apart.
UPS said that first-quarter profit equaled $1.55 per share, which was a penny better than the average forecast among 11 analysts surveyed by Zacks Investment Research.
Revenue of $17.11 billion topped the Zacks analysts’ average prediction of $16.44 billion.
UPS left unchanged its forecast for full-year earnings of between $7.03 and $7.37 per share.
Shares of UPS rose $3.09, or 2.8 percent, to $111.75 in midday trading. The shares began the day down nearly 9 percent since the beginning of the year, while the Standard & Poor’s 500 index had dropped slightly more than 1 percent.