United Parcel Service Inc. lowered its full-year profit forecast and revealed plans to cut management jobs as the courier contends with shifting consumer habits and rising costs after a tentative labor agreement.
(Bloomberg) — United Parcel Service Inc. lowered its full-year profit forecast and revealed plans to cut management jobs as the courier contends with shifting consumer habits and rising costs after a tentative labor agreement.
The company expects an adjusted operating margin of 11.8% in 2023, down one percentage point from earlier guidance. The move, along with a reduction in the revenue outlook, reflects “the volume impact from labor negotiations and the costs associated with the tentative agreement,” Chief Executive Officer Carol Tomé said on a call with analysts Tuesday following the release of quarterly results.
The revisions underscore the challenges confronting UPS as it grapples with declining package volume, pushback from customers over pandemic-era price increases and rising expenses. The company will face higher labor costs after negotiating a five-year contract with the International Brotherhood of Teamsters that gives unionized workers hefty raises.
UPS said Tuesday that it will pare its management ranks by 2,500 jobs to help keep expenses in check.
The shares fell 0.8% at 9:32 a.m. in New York. The stock had climbed 4.8% this year through Monday, trailing an 18% gain in the S&P 500 Index.
Adjusted earnings in the second quarter fell to $2.54 a share, UPS said in a statement. That beat the $2.50 average of analysts’ estimates compiled by Bloomberg. Revenue was $22.1 billion, missing the consensus. The adjusted operating margin was 13.2%, down from 14.4% a year earlier.
Average daily volume fell about 10% at the domestic unit, which makes up about two-thirds of UPS’s revenue, partially offset by a 3.3% increase in average price per package. Volume dropped 6.6% at the international unit.
“Volumes and revenue per piece both came in below our expectations across the board,” Helane Becker, an analyst with TD Cowen, said in a note.
Lost Business
The results were impacted as UPS lost some recent business to competitors due to uncertainty around the labor negotiations and the prospect of a strike. The company expects to win that volume back by the end of this year, the CEO said.
“As the noise level increased throughout the second quarter, we experienced more volume diversion than we anticipated,” Tomé said on the call.
The union has said that the new labor contract adds $30 billion of new money, including for costs to add air conditioning to UPS delivery vehicles purchased after the end of this year. The contract still must be ratified by the 340,000 workers it covers and the results of that vote will be given on Aug. 22, the union has said.
UPS plans to give a detailed breakdown of the contract and its effects after ratification.
For the full year, revenue is expected to be $93 billion in 2023, down from its prior forecast of $97 billion, UPS said. That’s short of the $96.6 billion expected by analysts.
(Updates with analyst comment, share trading, other details throughout)
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