UPS Delivers Lackluster First-Quarter Results Amid Shipping Slowdown
United Parcel Service, Inc. (UPS) reported disappointing first-quarter results on Tuesday, reflecting the ongoing slowdown in the shipping industry. Revenue declined by 5.3% compared to the same period last year, and operating profit dropped by 31.5% after adjusting for inflation.
The significant decline in operating profit is attributed to recent salary negotiations between UPS and the Teamsters, the union representing the company's employees. The historic wage agreement, finalized last August, guarantees a $170,000 salary for delivery truck drivers over the next five years, impacting 340,000 UPS teamsters with higher wages and improved working conditions.
Despite the challenging quarter, UPS shares rose by 2.4% on Tuesday as quarterly profit exceeded analyst expectations, even though it marked the fifth consecutive quarter of decline.
New USPS Contract and Cost-Cutting Measures Offer Hope
UPS secured a new contract with the United States Postal Service (USPS) to provide air cargo services, offering a positive development amidst the challenging market conditions. The USPS terminated its contract with FedEx Corp (FDX) earlier this month, opting for UPS as its primary contractor for first-class, priority, and priority express mail for at least five-and-a-half years.
This shift benefits both companies. FedEx aims to reduce its operations and cut costs, while UPS gains access to a significant revenue stream.
UPS CEO Carol Tomé acknowledged the difficulties faced in 2023, citing declines in volume, revenue, and operating profit across all business segments. She attributed these challenges to the macro environment and the new employee agreement.
However, Tomé expressed a more optimistic outlook for the future. While average daily volume continues to decline, the rate of decline has slowed both domestically and internationally. To compensate for the volume decline, UPS plans to eliminate 12,000 managerial positions, potentially saving $1 billion in 2024.
Tomé anticipates the USPS deal to contribute significantly to revenue growth, aligning with the company's strategy to expand its B2B business.