UPS misses quarterly estimates on high labour costs, weak small-package demand

UNITED Parcel Service (UPS) missed Wall Street estimates for second-quarter earnings on Tuesday (Jul 23), hurt by subdued package delivery demand and higher costs from its Teamsters labour contract.

Shares of the delivery company, seen as a bellwether for the global economy, were down 8 per cent in premarket trading, while shares of rival FedEx fell about 2 per cent.

UPS, FedEx and other home delivery providers have been slashing costs since the end of home-bound consumers’ early pandemic e-commerce binge in late 2021. Demand for doorstep delivery has since been stubbornly lacklustre.

UPS posted an adjusted profit of US$1.79 per share for the quarter, below analysts’ estimates of US$1.99, according to LSEG data.

The world’s biggest package delivery firm by market capitalisation also lowered its full-year adjusted operating margin forecast to 9.4 per cent, from a range of 10 to 10.6 per cent.

While a modest miss on estimates was anticipated, “the magnitude of the 2Q miss, coupled with the large downward revision to the full-year adjusted operating margin guide, will surprise even the biggest bears,” Jonathan Chappell, equity analyst at Evercore ISI, said in a note to clients.

UPS has been slashing costs to lift margins. In January, it said it would cut 12,000 jobs to save US$1 billion.

It struck a deal in June to sell off its volatile truckload brokerage business, Coyote Logistics, for about US$1 billion to RXO.

The company has said that it expects cost pressures to ease in the second half of the year, as a majority of the labour costs for the first year that rose as part of the new five-year Teamsters contract are absorbed by the second quarter.

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UPS reported second-quarter revenue of US$21.8 billion, below analysts’ estimates of US$22.18 billion.

However, in an upside for the company, it will replace FedEx as the primary expedited air service provider for the US Postal Service (USPS) in October. UPS expects the five-year contract to be profitable in its first year. REUTERS