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January 23, 2015 4:16 PM, EST

UPS Lowers 4Q Earnings Forecast on Holiday Costs

Michael Nagle/Bloomberg
UPS Inc. said fourth-quarter earnings per share will be $1.25, lagging Wall Street estimates, because of higher costs related to U.S. deliveries during the peak season.

“While [domestic] package volume and revenue results were in line with expectations, operating profit was negatively impacted by higher-than-expected peak-related expenses,” the statement said. UPS also said 2015 earnings would be “slightly below” its prior full-year target of 9% to 13% profit growth.

UPS added 95,000 seasonal workers, 73% more than 2013, and spent $500 million to expand network capability with the expectation of increased volume. However, demand didn’t match expectations during the 2014 holidays, except for two days, the statement said.

UPS geared up to meet increased demand after thousands of post-Christmas deliveries in 2013 because its network couldn’t handle surges of online and other orders.

The Atlanta-based company was expected to earn $1.47 per share in the fourth quarter, based on the average analyst estimate compiled by Bloomberg News.

UPS, which ranks No. 1 on the Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers, also said net income will be $4.75 per share for 2014.

“Clearly, our financial performance during the quarter was disappointing,” CEO David Abney said. “UPS invested heavily to ensure we would provide excellent service during peak when deliveries more than double.

“Though customers enjoyed high-quality service, it came at a cost to UPS. Going forward, we will reduce operating costs and implement new pricing strategies during peak season.”

Costs also rose because of training, overtime and rates charged by contract carriers.

The company said “the network was somewhat disrupted by volume fluctuations caused by the West Coast port dispute,” without giving details. The statement also said that the supply chain and freight business that includes international ocean shipping performed “in line” with expectations during the quarter, also without specific information.

Pension costs and currency adjustments are expected to hurt 2015 results, the statement said. During the fourth quarter, the company also had pension and health care related costs that hurt earnings, the statement said.