UPS reported a sharp drop in revenue and profit in the second quarter. The company also cut its profit forecast, expecting narrower margins in the wake of its tentative deal with the Teamsters union.
Shares of UPS (UPS) fell 5% in premarket trading following the report.
UPS reported adjusted income of $2.2 billion in the quarter, down 24% from a year earlier, though slightly better than estimates of analysts surveyed by Refinitiv. Revenue fell 11% to $22.1 billion.
The company also trimmed its full-year revenue outlook by $4 billion to $93 billion. UPS said it lost business during its labor negotiations and online purchases have been weaker. It also said its full-year profit margin will be 1% lower than its previous guidance, partly due to the cost of the labor deal with the union.
Some of the decline in shipment volumes came before shippers started shifting away from UPS in July after talks broke down. It took nearly three weeks for the two sides to return to the table, and many customers shifted their business to rival carriers to protect themselves from the risk of a strike.
UPS said its domestic package volume was down 10% in the second quarter, while international shipments were off nearly 7%. The company had already warned three months ago that it expected lower volumes this year due to a softening economy.
Although the US economy has remained stronger than many economists had forecast earlier this year, a shift in consumer buying habits has hurt the trucking industry. Consumers who were staying close to home during the early months and years of the pandemic increased their purchases of goods for their homes, many purchased online. That helped UPS post a series of record annual profits in recent years.
But this year consumers have shifted spending away from goods to services to experiences like travel, movies, eating out and live events such as concerts and sports. Those don’t move by truck.
UPS’s mention of seeing weaker online purchases in adjusting its full-year guidance helped to send shares of rival FedEx (FDX) slightly lower in premarket trading Tuesday, despite any business that might have shifted to FedEx (FDX) during the UPS labor negotiations.
The weaker second quarter shipments, and the company’s mention of weaker online purchases.
Despite the lower revenue and earnings guidance, the company said it expects to stick with its plan to pay $5.4 billion in dividends and repurchases of $3 billion in shares.
The company reached a tentative deal with the Teamsters on July 25, just ahead of an August 1 strike deadline. The 340,000 members of the union who work at the company are now voting on whether or not to ratify the deal. Vote results are expected on August 22.
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