UPS cuts margin, revenue forecasts as new labour contract weighs

UNITED Parcel Service (UPS) on Tuesday (Aug 8) cut its full-year revenue and margin forecasts and its shares fell 5.1 per cent in premarket trading, as the world’s largest delivery company expects a hit to volumes from a new labour contract.

The company agreed to end forced overtime for drivers and decided to limit seasonal work for part-timers to five weeks from November-December in a tentative five-year contract with the Teamsters union last month.

The contract for 340,000 US workers has to be ratified by employees. It includes wage hikes, another paid holiday, end to a two-tier wage system for drivers and air conditioning to new models of the company’s trucks.

The labour deal comes against the backdrop of a global shipping downturn that has hurt margins for logistics companies struggling to balance costs and capacity.

Some analysts said a potential loss for UPS is a gain for FedEx.

“The implied market share loss in UPS guidance maybe a positive readthrough for FedEx, which likely benefited from the UPS labour deal related uncertainty,” BMO Capital Markets analyst Fadi Chamoun said in a note.

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To shield its profit, UPS has been focusing on moving high-margin parcels, but its second-quarter sales took a hit from lower domestic and international package revenue.

UPS forecast annual consolidated revenue to be about US$93 billion compared with a prior view of about US$97 billion and said it expected 2023 adjusted operating margin of around 11.8 per cent, compared with an earlier forecast of about 12.8 per cent.

“We will stay on strategy to capture growth in the most attractive parts of the market,” CEO Carol Tomé said.

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Its adjusted profit of US$2.54 per share for the second quarter beat market expectations by 4 cents. Revenue fell about 11 per cent and missed estimates of US$23.1 billion, as per Refinitiv data.

Shares of rival FedEx were down about 1 per cent. REUTERS