NEW YORK, NY—UPS spent heavily to avoid last year’s debacle over the holidays, when an unexpected crush of last-minute shipping and terrible weather led millions of late deliveries.
It succeeded in making customers happy, but it cost the company.
UPS cut its outlook for the year Friday and warned that fourth-quarter earnings would come in well below Wall Street expectations.
Shares tumbled 10 per cent and UPS pulled down rival FedEx as well, which quickly sent out a news release sticking by its full-year outlook. Its shares slide 2 per cent.
“UPS invested heavily to ensure we would provide excellent service during peak when deliveries more than double,” said CEO David Abney. “Though customers enjoyed high quality service, it came at a cost to UPS.”
In addition to the thousands of temporary hires for the holiday season, UPS spent millions to improve volume forecasting, network visibility, package status tracking and on improving its communications with customers.
The company forecast an 11 percent increase compared with the huge rush the previous year, but it appeared to be ready.
Yet the cost to UPS shows how difficult logistics have become as shopping habits of Americans change.
The company added capacity to prepare for the “extreme spike” in volume on Cyber Monday and on Dec. 22, which is a peak delivery day before Christmas. However, the company said Friday that demand fell more significantly than expected on other days, meaning that as UPS hit the gas, its tires began to spin.
An ongoing labour dispute between longshoremen and shipping lines on the West Coast has also led to additional difficulties in shipping for both UPS and FedEx.
UPS said Friday that it will cut costs and change its pricing strategy during the peak shipping season.
It now expects 2014 earnings of $4.75 per share, down from its previous forecast of between $4.90 per share and $5 per share. Industry analysts had been looking for earnings of $4.96 per share, according to FactSet. For the fourth quarter, UPS expects earnings of $1.25 per share, well below the $1.47 per share analysts had projected.
FedEx Corp., based in Memphis, Tennessee, said it still expects earnings between $8.50 per share and $9 per share for the year. Analysts expect earnings of $8.97 per share.
Shares of UPS Inc. fell $11.19 to $103.06. Shares of FedEx Corp. fell $4.18, or 2.3 percent, to $177.22.