UPS lowers 2023 revenue outlook citing labor deal with 340,000 unionized workers, falling volume

Revenue fell at UPS in the second quarter and it lowered its full-year revenue expectations by $4 billion as package volumes declined and the delivery company came to a tentative labor contract late last month with its 340,000 unionized workers.

Package volume has been in decline for all shippers and fell significantly for UPS during the quarter, partially due to contentious labor negotiations. Shares for the Atlanta company fell slightly in afternoon trading.

Domestic revenue slid 6.9% during the quarter, as average daily package volume fell 9.9%. The company offset that decline somewhat, however, booking a 3.3% increase in revenue per piece.

CEO Carol Tome said during the company’s conference call that union negotiations impacted its package volume the deeper into talks, and the quarter, that they got.

“We expected negotiations with the Teamsters to be late and loud and they were,” Tome said. “As the noise level increased throughout the second quarter, we experienced more volume diversion than we anticipated.”

UPS reached a tentative deal with the International Brotherhood of Teamsters, potentially averting a strike that threatened to disrupt package deliveries for millions of businesses and households nationwide.

Under the agreement, which still needs to be approved by union members, full- and part-time union workers will get $2.75 more per hour in 2023, and $7.50 more by the end of the five-year contract. The deal includes a provision to increase starting pay for part-time workers — whom the union says are the most at risk of exploitation — from $16.20 per hour to $21 per hour. The average pay for part-timers had been $20.

Voting on the new contract began last week and conclude on Aug. 22.

United Parcel Service Inc. earned $2.08 billion, or $2.42 per share, for the three months ended June 30.

Adjusted earnings were $2.54 per share, which beat the $2.51 per share that analysts surveyed by Zacks Investment Research were looking for.

Revenue declined to $22.06 billion from $24.77 billion, missing Wall Street’s estimate of $22.88 billion.

Revenue for the domestic and international segments fell as average daily volume dropped.

The global shipping industry has been dealing with a package volume decline in part due to unpredictable consumer spending. Spending has been volatile this year after surging nearly 3% in January. Sales tumbled in February and March before recovering in April and May. Rising interest rates are also playing their part, as the Federal Reserve has been aggressively hiking rates since March 2022. Last month the Fed raised its key interest rate for the 11th time in 17 months as part of its ongoing drive to cool the economy and curb inflation.

UPS said that it now foresees 2023 consolidated revenue of about $93 billion. Its prior forecast was for revenue of around $97 billion.

Analysts polled by FactSet expect $96.45 billion.