United Parcel Service’s second-quarter results fell short of Wall Street expectations on Tuesday, hit by weak package delivery demand and higher costs stemming from its labor deal with the Teamsters.
Shares of the delivery company, seen as a proxy for the global economy, fell 8% in premarket trading, while shares of rival FedEx fell about 2%.
UPS, FedEx and other home delivery providers have been cutting costs since the e-commerce binge ended at the start of the pandemic in late 2021. Since then, demand for home delivery has remained stubbornly weak.
UPS reported adjusted earnings of $1.79 per share for the quarter, below analysts’ estimates of $1.99 per share, according to LSEG data.
The world’s largest package delivery company 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 earnings were expected to come in slightly below expectations, “the magnitude of the second quarter, coupled with the large downward revision to full-year adjusted operating margin, will surprise even the biggest critics,” Evercore ISI Equity analyst Jonathan Chappell said in a note to clients.
UPS has been cutting costs to boost margins. In January, the company said it would cut 12,000 jobs to save $1 billion.
In June, it reached an agreement to sell its volatile truckload brokerage business, Coyote Logistics, for about $1 billion to RXO.
The company expects cost pressures to ease in the second half of the year as most of the first-year labor costs, increased as part of the new five-year contract with the Teamsters, are absorbed in the second quarter.
UPS reported second-quarter revenue of $21.8 billion, below analysts’ estimates of $22.18 billion.
However, on a positive note for the company, it will replace FedEx as the primary provider of express air services for the United States Postal Service (USPS) in October. UPS expects the five-year contract to be profitable in the first year.
Source: Terra
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