United Parcel Service, Inc. (NYSE: UPS – $106.32) blamed harsh winter weather in the United States as it reported lower-than-expected first-quarter profit, sending shares down more than 7% in today’s trading. Despite the rough start to the year, the world’s largest package delivery company stuck by its forecast for 2019 earnings of $7.45 to $7.75 per share. That raises the pressure for Atlanta-based UPS, which is spending billions of dollars to modernize its network, to meet its targets during this year’s key winter holiday season. Operating profit in its U.S. domestic business, its biggest, dropped to $666 million in the quarter from $756 million a year earlier, largely due to an $80 million hit from weather-related disruptions. Net income fell more than 17% to $1.1 billion. Excluding an 11% charge related to modernizing its network, UPS earned $1.39 per share, missing analysts’ average estimate of $1.41 Revenue rose 0.3% to $17.2 billion, but was below expectations for $17.8 billion.
Prior productivity initiatives are paying off. In 2018, UPS opened/retrofit 22 facilities globally including five new super hubs with cutting-edge automation and productivity tools. There are 18 additional building projects currently under way, and the road network is also being enhanced. In 2019, 80% of ground volume is expected to go through automated facilities versus roughly 50% in 2017. Meanwhile, the sales force is providing small and mid-sized (SMB) customers with quicker and easier price quotes, which has lifted business-to-business volumes and yields of late. Further, UPS is partnering with e-commerce platforms Shopify and ShopRunner to raise its SMB market share. Conservative investors are wise to hold on. The shares pay a well-covered annual dividend of $3.84 yielding 3.4%.