United Parcel Service plane are loaded and unloaded with air containers stuffed with packages sure for his or her closing vacation spot on the UPS Worldport All Points International Hub through the peak supply season in Louisville, Kentucky, December 9, 2016. REUTERS/John Sommers II

By Nick Carey | CHICAGO

CHICAGO Facing decrease margins from its rising e-commerce enterprise, package deal supply firm United Parcel Service Inc (UPS.N) mentioned on Tuesday that it will pull ahead investments in automation and expertise and will increase costs to offset the diminished income from delivering packages to customers.

Atlanta-based UPS posted a quarterly loss Tuesday brought on by a pension cost and gave a full-year revenue forecast under analysts’ expectations, serving to push its shares down practically 7 p.c.

Like rival FedEx Corp (FDX.N), UPS has been struggling to determine how you can decrease e-commerce-related prices. UPS and FedEx have raised package deal charges by between 4.9 p.c and 5.9 p.c yearly since 2009.

“At the same time as we’re going to focus on the cost curve … we’re also going to continue to focus on yield management,” Chief Executive David Abney advised Reuters. “If (e-commerce) is going to continue to drive additional costs, then we have to make sure we pass on that cost to our customers.”

Delivering packages to residential addresses prices greater than to companies as a result of companies obtained extra packages per cease than particular person customers.

UPS mentioned fourth-quarter shipments to residential addresses from enterprise rose 11.5 p.c and a record-high 63 p.c of deliveries in December had been to houses. But whereas income at UPS’ flagship U.S. home package deal enterprise rose 6.3 p.c, income per package deal fell 6.1 p.c.

Abney mentioned the corporate would improve its capital expenditures to round $4 billion in 2017 from $3 billion final yr, additional boosting automation and expertise to deal with e-commerce packages.

He mentioned UPS would look at how you can go on rising prices to prospects.

Stephens Inc analyst Jack Atkins mentioned that buyers are starting to chafe at rising capital investments at UPS and FedEx that haven’t led to margin development lately.

“What’s got people troubled is they’re making all these investments just to keep margins where they are,” Atkins mentioned. “Investors are beginning to ask when will we see returns on these investments?”

In a consumer observe, Credit Suisse analyst Allison Landry mentioned the extra spending “calls into question whether e-commerce is more capital intensive than previously understood, and it leaves less cash available for share buybacks.”

The package deal supply firm reported a fourth-quarter internet lack of $239 million, or 27 cents per share, in contrast with a internet revenue of $1.33 billion, or $1.48 per share, a yr earlier.

Excluding the non-cash, after-tax pension cost of $1.90 per share, UPS reported earnings per share of $1.63. Analysts anticipated $1.69.

The cost is said to the corporate’s outlined profit pension packages for workers. When UPS finds that its long-term obligations for the pensions usually are not totally funded, it units apart additional money to cowl the shortfall.

UPS mentioned it anticipated full-year 2017 EPS in a spread of $5.80 to $6.10, including that the robust U.S. greenback ought to decrease adjusted EPS by 30 cents.

Analysts have predicted earnings per share of $6.17 in 2017, based on Thomson Reuters I/B/E/S.

Revenue within the quarter rose to $16.93 billion from $16.05 billion a yr earlier.

(Editing by Nick Zieminski and Alan Crosby)

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