The fourth quarter was a good business period for UPS (UPS 120.03, -7.29, -5.7%) -- too good in fact, as the package delivery company found it challenging to keep up with surges in cyber-period volume. Those challenges led to higher operating expenses during peak periods that crimped operating profit growth for the company's core U.S. Domestic segment.
That understanding, and reports that UPS's first quarter growth guidance came up a bit shy of analysts' average expectations, has undercut the stock today.
To be fair, UPS's fourth quarter results overall were good. Revenues increased 11.2% year-over-year to $18.83 billion and its adjusted operating profit rose 3.2% to $2.29 billion. UPS's adjusted diluted earnings per share of $1.67 were up 2.5% from the same period a year ago and slightly ahead of analysts' average expectation.
The company delivered an astounding 1.5 billion packages in the fourth quarter, up 5.7% from last year, accented by record deliveries for Peak Season of 762 million.
The latter was above the company's plan as UPS continued to benefit from the huge direct-to-consumer opportunity that has been borne out of the embrace of e-commerce shopping opportunities, many of which are replete with free shipping options.
That pickup in business taxed UPS's network capacity. The company acknowledged that it incurred an additional operating cost of $125 million due to shipments surging beyond network capacity for the U.S. Domestic segment, which delivered an 8.5% increase in revenue of $11.8 billion. UPS Ground volume increased 5.7%.
The International segment also enjoyed strong growth, posting its fourth consecutive quarter of double-digit export growth. That drove a 13% increase in revenue of $3.75 billion. Separately, the International segment enjoyed a 7.6% increase in operating profit, aided by broad growth and expanded yields that were a byproduct of improved economic activity and the investments UPS has been making to meet increased growth opportunities.
The Supply Chain and Freight segment saw a 21% increase in revenue of $3.24 billion and a 51% surge in operating profit of $270 million., as improved market conditions and structural cost-reduction programs hit home for UPS.
For the full-year 2017, total consolidated revenue jumped 8.2% to $65.9 billion and adjusted diluted EPS was $6.01. Capital expenditures were $5.2 billion and UPS has plans to ramp up its capital expenditures in 2018, saying they are expected to be $6.5 billion to $7.0 billion, up 25% to 35%.
That heavy investment plan, UPS said, will be dedicated mostly to new technology, aircraft and automated capacity.
It will be an active investment year for UPS, yet the company is still forecasting adjusted diluted earnings per share to be between $7.03 and $7.37 for 2018, up 20% at the midpoint. That guidance includes $200 million of additional pre-tax expense due to lower tax rates as well as the benefits of the Tax Cuts and Jobs Act.