By Ananta Agarwal and Lisa Baertlein
(Reuters) -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.
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.
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.
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.
(Reporting by Ananta Agarwal in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Maju Samuel)
Source Agencies
