By Paul Ziobro 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 31, 2020).

United Parcel Service Inc. continues to cozy up to Amazon.com Inc., even as its rival FedEx Corp. charts a path without the largest online retailer in the U.S.

UPS on Thursday posted a 9% jump in shipments in the fourth quarter, saying that Amazon provided the biggest lift to its growth of any customer. The delivery giant also for the first time quantified its exposure to Amazon, revealing that the retailer spent $8.6 billion with UPS last year, accounting for 11.6% of overall revenue.

That's nearly 10-times larger than the business that FedEx gave up last year when it ended two U.S. shipping contracts with Amazon. FedEx Chief Executive Fred Smith instead is committed to courting Walmart Inc., Target Corp. and other retailers and helping them compete against Amazon's e-commerce juggernaut.

UPS executives didn't express concerns about their ties with Amazon, even as the Seattle-based retailer is building its own delivery network that is poised to carry more of its own orders.

"As long as there's a mutually beneficial relationship, then we will continue and we will find ways to win together," UPS CEO David Abney said Thursday.

The close relationship with Amazon isn't stopping UPS from gaining business from other places. Mr. Abney said 90% of major retailers use UPS and that chains such as Target, Gap Inc. and Best Buy Inc. are all shipping more with UPS.

Mr. Abney said UPS was also able to capitalize on service problems at other carriers, particularly in the week before Christmas. "We had other people's customers coming to us asking us to take their packages," he said in an interview.

Amazon temporarily banned merchants from using FedEx Ground for Prime orders in the final weeks of December, citing poor service levels. A FedEx spokeswoman said the carrier had "outstanding service" in the period between Thanksgiving and Christmas.

"We experienced heavy demand from current and many new customers that recognized our speed advantage," she said.

UPS's reliance on Amazon and the overall shift to e-commerce, where packages tend to ship at lower rates, drove down the revenue that UPS received per shipment, which fell 2.5% across its business. But investments in automation and other steps to reduce expenses lowered the average cost to process packages by 3.2% in the U.S., boosting profits.

Due to accounting adjustments for the company's pension plan, UPS reported a quarterly loss of $106 million, compared with a profit of $453 million a year earlier. Adjusted for the pension charges and a legal settlement, UPS reported earnings of $2.11 a share, matching the estimate of analysts recently polled by FactSet. Revenue rose 3.6% to $20.57 billion.

UPS also is trying to capture more shipments from smaller and medium-size shippers. The company has moved up some of its planned projects this year to speed up shipments, and added extra delivery days, including Sundays, to cater to all online merchants, Mr. Abney said.

The added spending will damp earnings growth for the year, with UPS projecting adjusted earnings between $7.76 and $8.06 a share. Analysts were projecting earnings of $8.03 a share. The forecast assumed continued weakness overseas and in the U.S. industrial economy.

UPS stock was down 6.1% to $108.65 as of Thursday afternoon.

The company is more than halfway through a three-year spending spree on new facilities, upgrades to existing ones, and technology to help the company handle more packages. The latest projects include $1.4 billion to open a large sorting hub in Harrisburg, Pa., and three other automated facilities in Pennsylvania to serve the Northeast U.S.

It also continues to push into new technologies, including expanding a drone delivery service to another medical campus and investing in electric vehicle manufacturer Arrival. UPS has committed to buying 10,000 of Arrival's vehicles to use in Europe and the U.S.

Write to Paul Ziobro at Paul.Ziobro@wsj.com

 

(END) Dow Jones Newswires

January 31, 2020 02:47 ET (07:47 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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