UPS cuts margin, revenue forecasts as weak demand, new labor contract weigh

[August 08, 2023]  (Reuters) -United Parcel Service on Tuesday cut its revenue and margin forecasts for 2023, hurt by weakening e-commerce demand and in anticipation of a hit to volumes from an improved labor contract, sending its shares down 4.7% in premarket trading.   

A UPS delivery van is driven long a city street in Garden Grove, California, U.S., March 29, 2022. REUTERS/Mike Blake/File Photo

The world's largest delivery firm 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 that would cover about 340,000 U.S. workers needs 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 labor deal comes as a global shipping downturn hurts margins for logistics companies that are now struggling to balance costs and capacity in the face of lower demand.

In an attempt to shield its profit, UPS has in the recent quarters sharpened its focus on moving high-margin parcels.

It now expects full-year adjusted operating margin of around 11.8%, compared to its prior forecast of about 12.8%.

UPS forecast annual consolidated revenue to be about $93 billion, compared with a prior forecast of about $97 billion.

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

Shares of rival FedEx were also down 2%.

(Reporting by Priyamvada C in Bengaluru; Editing by Arun Koyyur)

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