A customer walks into a UPS store on July 05, 2023 in Austin, Texas.
Brandon Bell | Getty Images News | Getty Images
United Parcel Service on Tuesday cut its full-year revenue and margin forecasts and its shares fell 5.1% in premarket trading, as the world’s largest delivery company expects a hit to volumes from a new labor contract.
The company 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 for 340,000 U.S. workers has 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 against the backdrop of a global shipping downturn that has hurt margins for logistics companies struggling to balance costs and capacity.
Some analysts said a potential loss for UPS is a gain for FedEx.
“The implied market share loss in UPS guidance maybe a positive readthrough for FedEx, which likely benefited from the UPS labor deal related uncertainty,” BMO Capital Markets analyst Fadi Chamoun said in a note.
To shield its profit, UPS has been focusing on moving high-margin parcels, but its second-quarter sales took a hit from lower domestic and international package revenue.
UPS forecast annual consolidated revenue to be about $93 billion compared with a prior view of about $97 billion and said it expected 2023 adjusted operating margin of around 11.8%, compared with an earlier forecast of about 12.8%.
“We will stay on strategy to capture growth in the most attractive parts of the market,” CEO Carol Tomé said.
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.