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News >  Business

UPS tumbles as it grapples with stronger dollar, business shift

By Michael Sasso Bloomberg

United Parcel Service Inc. plunged the most in two years as a stronger U.S. dollar and the shift toward more consumer deliveries forced the courier to miss analysts’ predictions for 2017 earnings and fourth-quarter profit.

The world’s biggest package-delivery company is delivering a greater percentage of packages to homes, benefiting from e-commerce growth that has exceeded gains in the U.S. economy and sluggish industrial output. The flip side is that making smaller deliveries to homes is less efficient than bigger stops at businesses.

“The pace came in greater than we thought, and it challenged us,” Chief Executive Officer David Abney said in an interview Tuesday. The company has to “double down” on its efforts to automate its warehouses and take other steps to drive down the costs of home deliveries, he said. And the growth in e-commerce, especially during the holiday season, is a two-edged sword.

“Cyber week has become a huge increase from one week to the next, and so that drives your costs up,” Abney said.

Cowen & Co. analyst Helane Becker said the shift toward consumer shipments will continue to challenge UPS.

“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,” she wrote in a note to investors. has been expanding its own delivery capabilities in recent years, potentially threatening some business for UPS and rival FedEx Corp.

UPS’s shares fell 6.1 percent to $109.84 at 10:50 a.m. in New York after dropping as much as 7.1 percent, the biggest intraday decline since January 2015.

The company will also take a hit as bets on foreign-exchange wind down. UPS has recorded its strongest growth overseas recently, buoyed in part by gains from such currency hedging. New hedges will only take hold gradually during this year, however, exposing the company to more risk from the strong dollar. Adjusted earnings will absorb a $400 million pretax expense from foreign-exchange effects, the company said in a statement.

Earnings excluding items will be $5.80 to $6.10 a share in 2017, UPS said, with foreign-exchange effects reducing profit by 30 cents. Analysts had predicted $6.17, according to the average of estimates compiled by Bloomberg.

Fourth-quarter earnings excluding items also missed estimates. Profit was $1.63 a share, while analysts predicted $1.69. UPS reported a net loss of $239 million, or 27 cents a share, based on generally accepted accepted accounting principles.

Revenue climbed 5.5 percent to $16.9 billion, in line with analysts’ projection of $17 billion.

In the final three months of last year, UPS’s international segment reported its eighth consecutive quarter of double-digit profit growth, up 13 percent to $706 million.

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