×

UPDATE 2-Holiday shipping snags curb UPS's quarterly profit growth

(Adds details on outlook, capital expenditures, package volume)

Feb 1 (Reuters) - United Parcel Service Inc on Thursday said its fourth-quarter earnings suffered from higher costs resulting from surging shipping volumes during the peak holiday period, and its shares fell more than 4 percent.

The world's largest package delivery company had faced system bottlenecks and delayed deliveries in the period leading up to Christmas.

Often seen as an indicator of U.S. economic activity and consumer spending, UPS said revenue increased to $18.83 billion in the quarter from $16.93 billion a year earlier, above Wall Street's expectations of $18.18 billion.

The Atlanta-based company said revenue at its core U.S. domestic package service rose 8.4 percent to $11.84 billion on higher demand from online purchases.

UPS posted net income of $1.1 billion or $1.27 per share, compared with a year-earlier loss of $239 million, or 27 cents per share.

Adjusted for one-time items, earnings per share of $1.67 edged past analysts' expectations of $1.66.

The company said changes to U.S. tax laws benefited its results by 30 cents per share.

UPS shares, up about 16 percent over the past six months, were down 4.2 percent at $122 in premarket trading.

UPS delivered 1.5 billion packages during the quarter, up 5.7 percent from a year earlier. That included record peak-season deliveries of 762 million that surpassed its forecasts.

Despite making huge investments to upgrade its network to handle peak-period volumes, UPS said in December that some deliveries were delayed after a surge in holiday online shopping orders overwhelmed its system.

The company said the bottlenecks cost about $125 million, while investments in new technology and automated capacity expansion cost roughly $60 million.

UPS has worked for years to increase its ability to forecast customer shipping demands to handle major package volume spikes ahead of the holidays. It has also raised shipping rates and added 2018 peak-season surcharges.

The company forecast 2018 adjusted diluted earnings per share at $7.03 to $7.37. Analysts on average are expecting $7.16.

UPS's outlook includes about $200 million of additional pretax pension costs due to lower discount rates. However, the company said tax law changes benefits would boost net income and cash flow.

Savings from taxes will also help spur "accelerated investments in our network" and provide "additional opportunities for our people," Chief Executive Officer David Abney said in a statement.

UPS said it planned to invest $6.5 billion to $7 billion in aircraft and automation of its facilities.

Abney said on Thursday that UPS was adding 14 additional Boeing 747-8 aircraft and four new aircraft freighters to its fleet. (Reporting by Eric M. Johnson in Seattle; Editing by Chizu Nomiyama and Lisa Von Ahn)