United Parcel Service (UPS) fell short of Wall Street’s expectations for its second-quarter earnings on Tuesday, impacted by lower package delivery demand and increased costs from its Teamsters labor contract. As a result, UPS shares dropped 8% in premarket trading, while FedEx shares declined about 2%.
Since the early pandemic surge in e-commerce ended in late 2021, UPS, FedEx, and other home delivery companies have been cutting costs due to persistently weak demand for doorstep delivery.
UPS reported an adjusted profit of $1.79 per share for the quarter, missing analysts’ expectations of $1.99, according to LSEG data. The company, the largest package delivery firm by market capitalization, also revised its full-year adjusted operating margin forecast downward to 9.4% from a previous range of 10.0% to 10.6%.
While a slight miss on estimates was expected, Jonathan Chappell, an equity analyst at Evercore ISI, noted, “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.”
UPS has been cutting costs to improve margins. In January, it announced plans to cut 12,000 jobs to save $1 billion. In June, it agreed 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 increased labor costs from the new five-year Teamsters contract have been absorbed by the second quarter.
UPS reported second-quarter revenue of $21.8 billion, falling short of analysts’ estimates of $22.18 billion. However, the company will replace FedEx as the primary expedited air service provider for the U.S. Postal Service (USPS) in October, which is expected to be profitable in its first year of the five-year contract.
