United Parcel Service Inc will slash $1 billion from this year’s capital spending budget and reduce planned share buybacks by almost $800 million as it adjusts to “unprecedented” changes wrought by the novel coronavirus outbreak.
Shares sank 5 per cent to $97.47 in midday trading after the world’s biggest package delivery company, like dozens of other major firms, withdrew its financial 2020 forecasts after missing analyst estimates for profit in the first quarter.
UPS is under pressure to squeeze more profit out of booming e-commerce shipments as Amazon.com Inc looms as a double threat. The e-commerce giant is UPS’s largest customer and is building a rival delivery network.
UPS is prioritizing projects that help it run more efficiently, said Chief Executive David Abney, who will hand leadership of the 113-year-old company to former Home Depot executive Carol Tomé on June 1.
Dividends remain a high priority, executives said.
During the first quarter, U.S. average daily package volume rose 8.5 per cent and domestic Next Day Air volume surged 20.5 per cent – bolstered in part by a split between rival FedEx Corp and Amazon.
Government stay-at-home orders in mid-March sparked a boom in home deliveries of everything from food to exercise equipment. Those deliveries are less lucrative than business deliveries because they require more truck miles and stops per route.
UPS shipments have gone from an equal mix of home and business deliveries to roughly 70 per cent residential and 30 per cent business deliveries, Abney told Reuters.
We “don’t know that we’ll ever get back to what we’d call the old normal, but we’re not ready to declare what we see today as a new normal either,” Abney said.
International average daily volume fell 1.8 per cent during the first quarter. China volumes in March rebounded from sharp drops in January and February. Robust demand for personal protective equipment (PPE) and other healthcare shipments helped drive the recovery.
UPS has been scrambling planes around the world to match swiftly changing demand, Abney said: “It’s musical chairs, only with aircraft.”
First-quarter net income fell 13 per cent to $965 million, or $1.11 per share, including charges related to making UPS’s network faster and expanding weekend deliveries.
Excluding items, the Atlanta-based company earned $1.15 per share, missing the average analyst’ estimate of $1.23, according to IBES data from Refinitiv.
UPS has ample liquidity to manage through the coronavirus crisis and will not tap federal relief under the Coronavirus Aid, Relief and Economic Security (CARES) act, Chief Financial Officer Brian Newman said on a conference call.
Rival FedEx, which is grappling with both internal and external challenges, is participating in that program – which helps cover employee pay but allows the government to demand an ownership stake in the company.
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