UPS Fails to Adapt to E-Commerce Surge, Stock Suffers Biggest Drop in 2 Years

Shares of United Parcel Service (UPS) suffered earlier this month their biggest one-day selloff in two years, as disappointing fourth-quarter results revealed that UPS was still having trouble adapting to the surge in online holiday shopping. The results were also a clear lesson that not all business is good business.
To the surprise of no one, E-commerce business increased sharply during the holiday season, but by a lot more than UPS had anticipated. Chief Financial Officer Richard Peretz said that the normal percentage of business-to-consumer (B2C) revenue to total revenue is 55%, and that spiked to 63% in December, marking the biggest swing in 10 years.
While it might seem like that would be a good thing, B2C shipping is a lower-revenue, narrow-margin business, so it came at a cost to the company’s profits. Peretz said approximately two-thirds to three-quarters of the earnings miss was a result of this big shift in revenue source.
While UPS noted that they are in the early stages of a multiyear effort to adapt operations to meet those challenges, the quarter’s results reflect “more work needs to be done.” Peretz said UPS is increasing capital expenditures in 2017 to $4 billion from nearly $3 billion in 2016, in an effort to speed up its multiyear effort to adapt to e-commerce challenges by increasing capacity and efficiency, including through expanded automation.
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