UPS shares fell Tuesday morning after reporting a loss from a $2 billion-plus pension charge and a downbeat outlook.
Tuesday’s 6.5 percent decline in UPS’ shares, to $109.41 in early afternoon trading, nearly wiped out a surge in the company’s market value since the November election raised investors’ hopes that President Donald Trump’s policies would perk up the U.S. economy.
The Sandy Springs shipping giant said revenue in the fourth quarter rose more than 5 percent, to $16.9 billion, thanks to strong holiday shipping volumes.
UPS said it delivered 1.4 billion packages during the quarter, 7 percent more than a year ago.
UPS Chief Executive David Abney said the company’s international business “delivered another extraordinary performance, while the U.S. managed through considerable changes in product mix.”
But in a report, Cowen & Co. analysts said UPS’ growing reliance on business-to-consumer shipments from online shopping resulted in disappointing financial results.
UPS’ revenue and profit margins were lower than expected, the analysts said, because of lower prices on its U.S. shipments. The Cowen analysts noted that operating profit margins on its domestic shipments were 12.3 percent during the quarter, well below investment analysts’ consensus estimate of 13.7 percent.
“This weakness in the segment will likely lead to continued questions about growth of Amazon’s delivery network and how UPS will continue to drive growth in a weak industrial environment,” the analysts said.
UPS reported a $239 million loss during the quarter thanks to the charge related to pension costs for its U.S. and overseas workers. The non-cash charge, nearly $2.7 billion before taxes, was due partly to lower-than projected investment returns for its pension funds in 2015 and 2016.
In the year-earlier quarter, UPS had a $1.3 billion profit.
Without the pension costs, UPS said its fourth-quarter “adjusted” profit was $1.43 billion, slightly higher than the year-earlier profit of $1.41 billion.
The company projected that it will report “adjusted” earnings per share of between $5.80 and $6.10 this year, below the $6.17 analysts had expected. UPS said the lower range is partly due to “headwinds” of $400 million from a strong U.S. dollar, which makes overseas profits smaller in dollar terms.
On the same basis, UPS’ full-year “adjusted” profit per share in 2016 was $5.75. The adjusted figures exclude some one-time and non-cash expenses, such as the big hit from UPS’ pension costs.
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