(Bloomberg) — Shares of United Parcel Service Inc. fell the most in more than 15 years after the parcel giant reported profit well below Wall Street estimates amid pressure from wage inflation and weak demand for packages.
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Second-quarter adjusted earnings were $1.79 per share, the parcel giant said Tuesday in a statement. Analysts had expected an average of $1.98 per share, according to estimates compiled by Bloomberg. Revenue also fell short of expectations.
The results mark a setback for UPS as it faces higher labor costs in an environment of weakened demand following a boom in e-commerce deliveries driven by the pandemic. Investors had also previously raised questions about whether the company would be able to meet the long-term sales target announced in March.
“We believe this quarter represents yet another drop in investor sentiment toward stocks,” Jefferies analyst Stephanie Moore wrote in a research note.
UPS shares fell more than 11% after markets opened in New York on Tuesday, the biggest intraday drop since October 2008. Shares were down 7.7% this year through Monday’s close.
The post office has sought to reduce expenses while focusing on increasing operating margin in the coming years. UPS unveiled a plan in January to save $1 billion by cutting 12,000 management jobs. The Atlanta-based company said labor expenses would be brought forward under the Teamsters’ new union contract, agreed to about a year ago.
Average daily package volume in the second quarter increased slightly to 20.93 million, narrowly missing analysts’ estimate of 20.96 million.
Although the company had forecast a decline in operating profit, volume grew for the first time in nine quarters, which CEO Carol Tomé called “a significant turning point for our company.”
USPS Contract
A new contract with the US Postal Service could bring an additional boost in the second half of the year. The third and fourth quarters also bring spikes in shipping demand – and demand surcharges – around the holiday season.
UPS lowered its full-year revenue forecast to $93 billion, down from a previous forecast of as much as $94.5 billion. The company also restarted a share buyback program that targets about $1 billion annually.
“Today’s weaker than expected results will not leave investors with a sense of confidence in the outlook,” Barclays analyst Brandon Oglenski said in a research note.
The results come one day after UPS announced the acquisition of Mexican parcel carrier Estafeta. UPS has named international expansion, especially in the nearshoring destination of Mexico, as one of the company’s top growth priorities.
(Updates with declining participation from first paragraph.)
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