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UPDATE 4-Pension charge causes UPS loss, ecommerce costs cause headache


Package delivery company United Parcel Service Inc on Tuesday posted a quarterly loss caused by a pension charge and said it would pull forward investments to boost the profitability of its rising e-commerce business.

The company also gave a full-year profit forecast below analysts’ expectations, helping push UPS shares down nearly 7 percent.

Like rival FedEx Corp, UPS has been struggling to figure out how to bring down the higher costs associated with the rise of e-commerce.

Delivering packages to residential addresses costs more than to businesses because businesses received more packages per stop than individual consumers.

UPS said fourth-quarter shipments to residential addresses from business rose 11.5 percent and a record-high 63 percent of deliveries in December were to homes. But while revenue at UPS’ flagship U.S. domestic package business rose 6.3 percent, revenue per package fell 6.1 percent.

Chief Executive David Abney said the company would increase its capital expenditures to around $4 billion in 2017 from $3 billion last year, further boosting automation and technology to handle e-commerce packages.

He also said the company would look at how to pass on rising costs to customers.

“At the same time, as we’re going to focus on the cost curve … we’re also going to continue to focus on yield management,” Abney said. “If (e-commerce) is going to continue to drive additional costs, then we have to make sure we pass on that cost to our customers.”

Stephens Inc analyst Jack Atkins said that investors are beginning to chafe at rising capital investments at UPS and FedEx that have not led to margin growth in recent years.

“What’s got people troubled is they’re making all these investments just to keep margins where they are,” Atkins said. “Investors are beginning to ask when will we see returns on these investments?”

The package delivery company reported a fourth-quarter net loss of $239 million, or 27 cents per share, compared with a net profit of $1.33 billion, or $1.48 per share, a year earlier.

Excluding the non-cash, after-tax pension charge of $1.90 per share, UPS reported earnings per share of $1.63. Analysts expected $1.69.

The charge is related to the company’s defined benefit pension programs for employees. When UPS finds that its long-term obligations for the pensions are not fully funded, it sets aside extra cash to cover the shortfall.

UPS said it expected full-year 2017 EPS in a range of $5.80 to $6.10, adding that the strong U.S. dollar should lower adjusted EPS by 30 cents.

Analysts have predicted earnings per share of $6.17 in 2017, according to Thomson Reuters I/B/E/S.

Revenue in the quarter rose to $16.93 billion from $16.05 billion a year earlier.

(This article has not been edited by DNA’s editorial team and is auto-generated from an agency feed.)