Drop proves UPS has yet to deliver on e-commerce

ATLANTA— United Parcel Service Inc. continued to struggle to get the most out of residential deliveries, as efficiency dropped in the key U.S. market. First-quarter operating profit slipped 2.4 per cent in the U.S. package division even as revenue rose 5 per cent from a year earlier, Atlanta-based UPS said Thursday.

That signalled continued challenges in the company’s efforts to benefit from surging e-commerce, since home deliveries are less efficient than shipments to businesses.

The domestic operation also “experienced slight year-over-year margin deterioration caused by previously disclosed heavier investment in facility and network modernization,” the company said by email.

Profiting from e-commerce “remains the stock’s primary overhang,” Ben Hartford, an analyst at Robert W. Baird & Co., said in a note before the results were released. UPS is attempting to save as much as $1billion a year as residential deliveries climb, in part by further automating its warehouses and outfitting drivers with mapping software.

Concern over the company’s prowess at reining in home-delivery costs sent the stock down 6.1 per cent this year through Wednesday, while rival FedEx Corp. rose 1.8 per cent.

Total revenue increased 6.2 per cent to $20.8 billion (Canadian) in the first quarter. Analysts on average predicted $15.2 billion, according to estimates compiled by Bloomberg.

“The question they have to answer is what’s the growth?” Cowen & Co. analyst Helane Becker said in an interview.

Revenue hasn’t jumped by more than 10 per cent since 2006, and climbed just 4.4 per cent last year.

“They haven’t really demonstrated that double-digit growth rate in a long time,” she said before the results were released.