UPS profit beats estimates as cost cuts offset weak delivery demand

By Thomson Reuters Apr 23, 2024 | 5:09 AM

(Reuters) -United Parcel Service reported first-quarter profit above estimates on Tuesday as cost cuts partly offset subdued demand for small-package delivery, sending its shares up 3.5% premarket.

The company cut 12,000 jobs in January to save $1 billion in costs in 2024, attempting to counter sagging volumes and higher labor expenses as demand normalized following a boom during the pandemic.

UPS reported a 3.2% decline in average daily volumes in its domestic segment and a 5.8% drop in its international segment, but said volumes “showed improvement through the quarter”.

“Revenue in both major businesses, U.S. Domestic and International, fell short of expectations,” said Jonathan Chappell, equity analyst at Evercore ISI, in a research note.

To offset lower volumes, UPS is focusing on more high-margin businesses such as small and medium enterprises and healthcare logistics, where revenue hit $10 billion for the first time in 2023.

A new labor contract with the Teamsters union has also been squeezing the Atlanta-based company’s margins. UPS is absorbing 46% of the wage and benefit costs of the new five-year contract in 2024.

It reported an adjusted operating margin of 8% for the quarter, down from about 11.1% last year. The company earlier said this quarter’s margin would be its lowest in 2024, with business conditions improving in the second half of the year.

“UPS has been out of favor for several quarters,” said Chappell, adding that “the good news is that the adjusted upside came from costs/productivity.”

Growing its market share has also been a priority for UPS.

It recently secured the contract to provide Priority Mail and other speedy services for the U.S. Postal Service (USPS) – work previously handled by rival FedEx.

The world’s biggest package delivery firm by market capitalization posted an adjusted profit of $1.43 per share for the quarter, down 35% from last year but above analysts’ estimates of $1.29, according to LSEG data.

Its revenue of $21.71 billion was below estimates of $21.86 billion.

(Reporting by Ananta Agarwal in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Devika Syamnath)