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Struggling to Keep Up in Holiday Season, UPS to Invest in Operations

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Employees sorting packages at the United Parcel Service Chicago Area Consolidation Hub in Hodgkins, Ill., in December. The company reported its quarterly results Thursday.
Photo:

Daniel Acker/Bloomberg News

United Parcel Service Inc.
UPS -6.46%

said a surge in volume helped grow sales over the busy holiday delivery season, but higher costs cut into its bottom line as the company resorted to costly methods to resolve service delays.

The Atlanta-based company, which underestimated how many packages it expected to deliver during the holiday season, said it incurred an extra $125 million in operating costs during the peak period. It delivered 762 million packages, ahead of the 750 million it initially forecast for the season.

UPS said it would spend more to keep up with future demand. The company plans to spend between $6.5 billion and $7 billion on capital expenditures during 2018, up from the $5.2 billion it spent last year. The investments will primarily be for new technology, aircraft and automation.

In addition to rising delivery costs, UPS could also be beset by rising labor costs as it works through intense labor negotiations with the Teamsters union. A ban on drones or driverless trucks was among the union’s first demands.

Shares, up 21% over the past year, fell 3.8% to $122.50 during premarket trading.

In all for the fourth quarter the company topped views. UPS reported a profit of $1.1 billion, or $1.27 a share, compared with a loss of $239 million, or 27 cents a share, a year earlier. The prior-year quarter was hurt by a $1.90 per share pension-related charge while the current quarter results were boosted by 30 cents due to the recently passed tax overhaul. On an adjusted basis earnings rose to $1.67 a share from $1.63.

Revenue jumped 11% to $18.83 billion.

Analysts polled by Thomson Reuters had forecast earnings of $1.66 a share on $18.19 billion in sales.

The courier also said it expected 2018 adjusted per-share earnings of $7.03 to $7.37. Analysts polled by Thomson Reuters had forecast annual profit of $7.16 per share.

Write to Imani Moise at imani.moise@wsj.com and Paul Ziobro at Paul.Ziobro@wsj.com

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