UPS profit forecast falls short of estimates on global weakness

United Parcel Service Inc.’s profit outlook fell short of analyst estimates, held back by declines in global industrial production and spending to cope with soaring e-commerce deliveries.

• Earnings will be $7.76 to $8.06 a share this year, UPS said in a statement Thursday as it reported earnings. Analysts had predicted $8.07 a share on average, higher than the $7.91 midpoint of the UPS forecast.

Key Insights

• While the forecast was weak, UPS logged a third consecutive quarter of gains in profit margins. That reversed a slide that began at the end of 2016, when rising e-commerce deliveries started jacked up costs. Fourth-quarter operating margin increased to 11.1% from 10.1% a year earlier as the courier emerged unscathed from another record holiday delivery season.
• The cautious outlook could dent confidence in UPS’s $20 billion investment in technology improvements. The company had been winning over investors in recent quarters as the spending binge showed signs of increasing efficiency.
• UPS will continue to invest heavily in technology as a way to improve efficiency, with capital spending rising to about $6.7 billion this year as it bets more on automation to drive down costs. Free cash flow is expected to be $4.3 billion to $4.7 billion this year, compared with about $4.1 billion in 2019.
• Global fallout from the U.S.-China trade war hurt international package demand and prices. UPS said international revenue fell 1.7% to $3.76 billion. Abney earlier this month said a Phase One trade agreement between the U.S. and China should ease some of the pressure on international trade.