(Reuters) - United Parcel Service Inc’s multi-billion-dollar effort to revamp its network helped it exceed profit expectations in the crucial holiday fourth quarter, driving down costs as e-commerce deliveries surged to record levels.
Shares jumped 5.2 percent to $106.47 in midday trading after UPS also said its efforts would propel growth in adjusted operating profit by around 13 percent this year.
“Our strategies are paying off and giving us profit improvement,” UPS Chief Executive David Abney told Reuters.
UPS and rival FedEx have undertaken massive network revamps to better manage a surge in packages driven by an increasing shift by consumers to online shopping. Those home deliveries are pricier because there are fewer of them in general than those heading to business addresses.
UPS spent $6.6 billion in 2018 as part of a three-year plan to automate package-sorting hubs, make routes more efficient and to upgrade airplanes and other equipment.
The effort is beginning to pay off, said Cowen & Co analyst Helane Becker.
“UPS posted its strongest peak shipping season since at least 2013 ... and these trends should continue as new global sorting hubs come online,” she said.
The earnings report lands as growth in European and Asian economies decelerates and the U.S. shows signs of cooling.
UPS rival FedEx Corp last month slashed its 2019 forecast, citing slowing global trade.
UPS gets 20 percent of its revenue overseas. It is less exposed than FedEx, which gets one-third of its revenue from outside the United States.
UPS is also pushing to recruit more small business customers and to increase expedited services, which are more profitable than delivering e-commerce parcels to shopper doorsteps.
Those factors helped “buffer the impacts of global economic softening,” Abney said.
To be sure, some impact of the global slowdown on future earnings is expected, with UPS forecasting 2019 earnings per share between $7.45 and $7.75, largely below analysts’ average estimate of $7.69 per share, according to Refinitiv data.
That outlook “likely factors in the ... continued uncertainty regarding U.S.-China trade relations and Brexit,” Becker said.
Atlanta-based UPS affirmed planned capital spending of 8.5 percent to 10 percent of 2019 revenue, in line with 2018.
Net income fell to $453 million, or 52 cents per share, in the fourth quarter ended Dec. 31, from $1.10 billion, or $1.26 per share, a year earlier, when it booked a gain from changes to U.S. tax law.
UPS booked a $1.2 billion after-tax pension charge, double that from a year earlier, as the U.S. stock market swooned in the fourth quarter.
On an adjusted basis, it earned $1.94 per share, beating analysts’ estimates by 4 cents.
Revenue rose to $19.85 billion from $18.98 billion.
U.S. revenue was up almost 6 percent at $12.6 billion, helped by a nearly 5 percent increase in revenue per parcel. International revenue increased 2.9 percent to $3.8 billion.
“It looks like UPS is starting to turn the corner on operating performance in domestic,” Bernstein analyst David Vernon said in a note.
He said strong international results indicated the company was reaping the rewards of recent investments in larger aircraft.
Reporting by Lisa Baertlein in Los Angeles and Ankit Ajmera in Bengaluru; Editing by Bernadette Baum