UPS predicts record holiday deliveries, defends price hike

UPS expects another record holiday season, with deliveries up 5 percent over last year, as online shopping continues to grow.

The company said Thursday that it expects to deliver more than 750 million packages between Thanksgiving and Dec. 31. It expects to haul at least 30 million packages on 17 of the last 21 delivery days before Christmas.

UPS issued its holiday forecast as it reported third-quarter earnings of $1.26 billion, and just a day after it announced rate increases averaging 4.9 percent for many services beginning Dec. 24.

That increase is more than double the 2.2 percent rate of inflation, as measured by the Labor Department's consumer price index.

CEO David Abney defended the price hike, saying it is needed to provide deliveries in the age of e-commerce.

UPS gets paid mostly by the weight of packages, yet many goods that consumers order are relatively light and often bulky. Online shopping also means UPS must make more residential deliveries — typically one package at a time — instead of a driver dropping off several packages at a single business address.

"You can look at the rate of inflation," Abney said in an interview. "You also have to look at how the characteristics of our business have changed. E-commerce is changing the nature of our business, and we need to be paid accordingly."

Atlanta-based UPS expects to increase spending on more highly automated package-handling facilities, airplanes and other investments to meet rising volumes driven largely by e-commerce.

Investors have been concerned about rising costs. Cowen and Co. analyst Helane Becker said Thursday that the ongoing infrastructure spending could weigh on 2018 profit.

For the upcoming Christmas season, UPS said it is working with shippers to handle more packages. It also hopes that additional Saturday operations and peak-day surcharges will help it tamp down the spikes in shipments on certain days.

The company also plans to add about 95,000 seasonal workers, the same as last year, and use more automation.

UPS' third-quarter earnings were nearly flat with the same period last year. Adjusted to exclude one-time items, UPS said, it would have earned $1.45 per share, a penny better than industry analysts expected, according to a survey by Zacks Investment Research.

Revenue rose 7 percent to $15.98 billion, beating the survey's forecast of $15.61 billion.

UPS expects full-year earnings in the range of $5.85 to $6.10 per share.

Abney said on a call with analysts that the company is slightly more upbeat about the economy helping its business in 2018 than it was three months ago. He cited economic growth, possible tax cuts, and the expectation of stronger industrial production.

Shares of United Parcel Service Inc. rose $1.34 to $119.89 in afternoon trading. They began the day up slightly more than 3 percent since the beginning of the year, while the Standard & Poor's 500 index had climbed 14 percent. 1