UPS misses quarterly estimates on high labor costs, weak small-package demand
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.
United Parcel Service missed Wall Street estimates for second-quarter earnings on Tuesday, hurt by subdued package delivery demand and higher costs from its Teamsters labor contract.
Shares of the delivery company, seen as a bellwether for the global economy, were down 8% in premarket trading, while shares of rival FedEx fell about 2%.
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 lackluster.
SOME UPS DRIVERS STILL WAITING FOR AIR CONDITIONING IN TRUCKS AS TEMPERATURES SOAR NATIONWIDE
UPS posted an adjusted profit of $1.79 per share for the quarter, below analysts' estimates of $1.99, according to LSEG data.
The world's biggest package delivery firm by market capitalization also lowered its full-year adjusted operating margin forecast to 9.4%, from a range of 10.0% to 10.6%.
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.
FEDEX FOUNDER FRED SMITH: U.S. RECORD DEBT ‘UNSUSTAINABLE’
UPS has been slashing costs to lift margins. In January, it said it would cut 12,000 jobs to save $1 billion.
It struck a deal in June to sell off its volatile truckload brokerage business, Coyote Logistics, for about $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 labor costs for the first year that rose as part of the new five-year Teamsters contract are absorbed by the second quarter.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
UPS reported second-quarter revenue of $21.8 billion, below analysts' estimates of $22.18 billion.
However, in an upside for the company, it will replace FedEx as the primary expedited air service provider for the U.S. Postal Service (USPS) in October. UPS expects the five-year contract to be profitable in its first year.