UPS released its 2017 Q4 earnings, beating Wall Street’s expectations by $.01 per share. Key take away items: increased package volume and higher yields.
United Parcel Service (UPS) Q4 Earnings Growth
How you interpret UPS’ earnings report depends on which articles you read and how much you read into the statements themselves. Probably the most quantifiable measure: the earnings per share (EPS) of $1.67 edged past analysts’ expectations of $1.66.
The statement from CEO, David Abney, paints a rosy picture, “We made significant progress on key capacity investments in 2017. Our momentum, transformative actions and the economic catalyst from the Tax Cuts and Jobs Act (TCJA), position UPS for growth in 2018 and beyond. We expect to unlock significant resources, which will be available for accelerated investments in our network and create additional opportunities for our people.”
Those accelerated investments add up to a $12 billion investment program (announced on the same day as Q4 earnings) that Abney says is, “an outgrowth of the opportunity for tax savings created by the Tax and Jobs act.” UPS also plans to invest $7 billion over a three-year period for new ground vehicles and aircrafts, renovate and construct new facilities, and enhance IT platforms.
If you read Eric M. Johnson at Reuters article, you’ll believe that UPS’ “fourth-quarter earnings suffered from higher costs resulting from surging shipping volumes during the peak holiday period, and its shares fell more than 4 percent.” Eric continues, “the company said the bottlenecks cost about $125 million, while investments in new technology and automated capacity expansion cost roughly $60 million.”
To us it sounds like, no matter how prepared they were with Peak Season Surcharges, UPS wasn’t ready – if they “suffered” in 2017 they will likely increase Peak Surcharges even more for 2018 and they’re probably planning their strategy now – and you should follow suit.
Long story short: it’s the same as last year; earnings did well because of higher volume (thanks to increased eCommerce shopping) and higher rates (and Peak Season surcharges).
Teamster Labor Union Wants to Ban UPS from Using Drones or Driverless Vehicles
While David Abney is promising to use savings from taxes to spur investment in the UPS network, Teamsters labor union is lobbying to ensure those investments don’t include drones or driverless vehicles.
UPS and Teamsters labor union have been negotiating one of the nation’s largest collective bargaining agreements – currently affecting 260,000 full and part-time UPS employees with an expiration date of July 2018.
The major demands from the Teamsters include:
- Banning drones or driverless vehicles for delivering packages
- Hiring 10,000 additional employees
- Prohibiting deliveries after 9 p.m., including during the Peak Season months of November and December
It seems doubtful that UPS will agree to terms that prohibit pursuing the use of technologies that its competitors appear to have every intention of pursuing, especially after the announcement of their $12 billion investment program.
As the rapid growth of eCommerce continues to send more packages through their respective networks, the stakes are only going to get higher for carriers and they’ll need to leverage every competitive advantage they can get their hands on. Speaking of competition…
Meet Autonomous Delivery Van Nuro
While the Teamsters are trying to negotiate with UPS to ban the use of automation technology, it appears that everyone else is on the progressive autonomous technology bandwagon, including a Silicon Valley start-up founded by two former engineers from Google’s self-driving car project.
Dave Ferguson and Jiajun Zhu designed Nuro – a self-driving vehicle shaped like a tiny minivan making it a safer option for pedestrians to pick up their purchases. Nuro, along with companies like Ford, Toyota, and DHL are motivated to solve the most inefficient and expensive part of the supply chain: the last mile.
The hope is that Nuro (and vehicles like it) become powerful tools for local businesses like convenience stores or dry-cleaning services to appease the consumer demand for even faster and more convenient service.
Nuro includes built-in compartments that can hold 10 shopping bags and include configurable features to accommodate custom objects such as lockers, clothing racks, and even heating or cooling elements – the future parcel locker on wheels, if you will. After 18 months of development, the company is hoping Nuro will be operating in limited service by the end of this year.
The startup company is speaking with big and small retailers and potential partners to build the self-driving vehicle. Imagine the possibilities – soon we could be picking up our dry-cleaning, our morning coffee and bagel at the same time from the the comfort of our homes.