United Parcel Service (UPS) reported a sharp drop in third-quarter profits on Oct. 26 and cut its revenue forecast for the year as demand for the company’s services declined.
For the three-month period ended Sept. 30, UPS earned adjusted net income of $1.3 billion in the quarter, or $1.57 a share, down 48.7 percent from a year ago. That’s slightly better compared with analysts’ average estimate of $1.52, according to LSEG data.
Revenue declined to $21.1 billion from $24.2 billion last year. The Atlanta-based company also lowered its revenue outlook for 2023 as it expects this year’s consolidated revenue to be between $91.3 billion and $92.3 billion, and a consolidated operating margin of between 10.8 percent and 11.3 percent.
“While unfavorable macroeconomic conditions impacted global demand in the quarter, our U.S. labor contract was fully ratified in early September and volume that diverted during our labor negotiations is starting to return to our network,” UPS CEO Carol Tomé said in a statement.
“Looking ahead, we are well-prepared for the peak holiday season.”
Tomé said the company plans to hire over 100,000 seasonal employees for the holidays, the same as last year.
The package delivery company is caught in a profit squeeze as it absorbs significant costs from its new labor contract with the International Brotherhood of Teamsters-represented workforce.
It also battles to win back business lost during its negotiations with the Teamsters over the summer, as many major customers switched to other services during this period over concerns that a strike and service disruptions would occur.
UPS is booking 46 percent of wage and benefit costs from its five-year contract covering roughly 340,000 workers this year. The company hasn’t revealed the all-in cost of that agreement, saying only that it is less than the $30 billion cited by the Teamsters.
Under terms of the new agreement, part-time workers will earn $21 an hour, while certain drivers will earn as much as $49 per hour, with maximum wages of $175,000 per year, by the end of the five-year term.
UPS said it has prioritized moving high-margin parcels for health care and other businesses to protect profit. UPS in September agreed to acquire MNX Global Logistics, a health care delivery service, for an undisclosed amount. The deal is expected to close by the end of the year.
The courier also has pledged to cut 2,500 management jobs and lean on automation to boost worker efficiency.
The entire industry is fighting for market share as demand from e-commerce delivery weakens, in part owing to unpredictable consumer spending.
UPS, seen as a bellwether for the U.S. economy, and other logistics companies have been racing to match costs to global demand that has fallen to pre-pandemic levels.
As health protections lifted, consumers resumed spending on travel, concerts, and other entertainment, leaving UPS, FedEx, Amazon.com, and regional firms with more delivery capacity than packages to handle.
Those companies are now racing to keep and win business, which is helping customers negotiate discounts that were virtually unheard of before the COVID-19 e-commerce bubble burst.
U.S. carriers and analysts expect a “weak peak” holiday delivery season for the period that stretches from Thanksgiving Day on Nov. 23 into mid-January, as higher costs for food, fuel, and housing erode consumer spending.
