UPS Revenue at Low End of Estimates as Retail Sales Slow

United Parcel Service Inc. fell the most since 2015 after warning that slowing retail demand would pressure its sales this year.

(Bloomberg) — United Parcel Service Inc. fell the most since 2015 after warning that slowing retail demand would pressure its sales this year.

Revenue in 2023 will be at the bottom end of the forecast range of $97 billion to $99.4 billion provided in January, the company said Tuesday in a statement announcing quarterly results. Earnings and sales over the first three months matched analysts’ estimates.

“The lowered guidance is in response to what has been a continued deterioration in the macro,” Stephanie Moore, a Jefferies analyst, said in a note. The company’s shares could face pressure “with expectations broadly that the macro will deteriorate further and UPS’s guidance signaling a similar theme.”

The stock tumbled 9.5% at 10:46 a.m. in New York, the biggest intraday decline since January 2015. The shares climbed 13% this year through Monday’s close, outpacing the gain in the S&P 500 Index.

The decline in package demand from pandemic highs tests Chief Executive Officer Carol Tomé’s strategy of focusing on small businesses, health-care providers and other high-paying customers to boost profit margins while curtailing service to some large e-commerce companies, such as Inc., that negotiate more discounts. 

Management is also leaning on technology to boost efficiency, including putting radio frequency identification tags on all packages to reduce mistakes while sorting and loading packages into delivery trucks.

The courier faces the possibility of a union strike from its 330,000 workers as the company negotiates to replace a five-year labor contract that expires on July 31. Some customers have diverted package volume to rivals, including FedEx Corp., in case there’s a work stoppage. Tomé has said she expects to find middle ground with the union and reach a new contract before the strike deadline.

Adjusted first-quarter earnings were $2.20 a share, the Atlanta-based courier said. That matched analysts’ estimate of $2.20. Sales were $22.9 billion, also in line with expectations.

“Deceleration in US retail sales resulted in lower volume than we anticipated, and we faced ongoing demand weakness in Asia,” Tomé said in the statement.

UPS’s adjusted operating profit margins fell to 11.1% from 13.6% a year earlier. The courier also adopted the low end of its January guidance on 2023 profit margins of 12.8% to 13.6%. The company cited “challenging macro conditions and changes in consumer behavior.”

The company’s US domestic unit, which makes up about two-thirds of sales, saw parcel volume drop 5.4% even as revenue per package rose 4.8%. Revenue dropped almost 7% at the international business as volume fell 6.2%. Sales at supply chain solutions, which among other things provides freight brokerage, plummeted more than 22% as cargo prices decline. 

Package demand is expected to continue “under pressure,” the company said. 

“We will remain focused on driving productivity while investing in efficiency and growth initiatives, enabling us to come out of this demand cycle even stronger,” Tomé said. 

–With assistance from Benedikt Kammel.

(Updates shares)

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