UPS slashes forecast as it spends to boost capacity

A UPS worker delivers packages in Chicago.
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United Parcel Service, the world's biggest courier company, slashed its earnings forecast for the year as it spends to boost capacity ahead of the holiday shopping season.

UPS's shares fell 3 percent to $99.50 in premarket trading after the company also reported a bigger-than-expected decline in second-quarter profit. (Click here for the latest quote.)

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UPS faced criticism last Christmas when a surge in online shopping caught the company off guard, leading to huge delays that frustrated customers.

The company said on Tuesday it would invest $175 million to beef up its capacity and technology to ensure timely deliveries during the peak shopping season beginning around Thanksgiving.

"... We are making investments in new capabilities and network capacity to ensure we meet customer expectations," Chief Financial Officer Kurt Kuehn said.

The Atlanta-based company said it expects full-year adjusted earnings of $4.90 to $5.00 per share. The company said in April it expected earnings to come in at the lower end of its previous forecast of $5.05 to $5.30 per share.

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UPS's net income fell to $454 million, or 49 cents per share in the second quarter ended June 30, from $1.07 billion, or $1.13 per share, a year earlier.

Net income included a charge of $665 million for post-retirement liabilities for some union employees.

Excluding the charge, the company earned $1.21 per share, falling short of the average analyst estimate $1.25 per share.

Total operating expenses rose 15 percent to $13.5 billion as the company bought additional capacity at a premium from local service partners in Europe to address growth in shipments.

Global package shipments rose 7.2 percent in the quarter, driven by online shopping in the United States and strong international shipments.

Total revenue rose 6 percent to $14.27 billion. Analysts on average had expected $14.11 billion, according to Thomson Reuters I/B/E/S.

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UPS's shares have fallen 2.3 percent since the beginning of the year, trailing the broader Dow Jones U.S. Delivery Services Index, which has fallen 0.5 percent.

After the earnings announcement, the company's shares fell in pre-market trading. (Click here for the latest quote.)

By Reuters