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UPS and FedEx Are Weaker Due to E-Commerce Costs

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Industrials

The industrials sector showed weakness for the third consecutive trading day amid weakness in respective industries. The S&P 500 Industrials sector fell 0.93% on Tuesday. Industries in the industrials sector that are related to airlines such as aerospace and defense, airlines, air freight, and logistics lost their strength due to President Trump’s immigration ban. President Trump suspended citizens from Yemen, Iraq, Iran, Somalia, Sudan, Libya, and Syria coming into the US for the next three months. United Parcel Service (UPS), Pentair (PNR), and Flowserve (FLS) lost the most in the industrials sector on Tuesday.

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UPS missed earnings estimates

UPS, the world’s largest package delivery company, fell 6.8% on January 31. It fell due to weaker-than-expected 4Q16 earnings and 2017 outlook. According to the report, the earnings per share and revenue in 3Q16 were $1.63 and $16.93 billion—below the market’s expectations of $1.69 and $17 billion, respectively. According to UPS, the weaker results were due to the pension charge. UPS plans to increase the capital expenditure in 2017 to $4 billion from $3 billion in 2016. UPS announced its 2017 outlook of $5.8–$6.1 per share. It’s below the market’s expectation of $6.16 per share.

To counter the decline in margins from its e-commerce business, UPS plans to boost investments in automation and technology. FedEx is also facing the same issue. FedEx (FDX) is one of the major multinational courier delivery services. It has been trying to decrease its e-commerce costs. Since 2009, FedEx and UPS raised the annual package rates 5.9% and 4.9%, respectively. On Tuesday, FedEx fell 2.1% to $189.11—the lowest close in a week. Read Understanding FedEx’s Capital Expenditure in Fiscal 2017 for analysis on FedEx’s capital expenditure in 2017.

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