UPS cuts forecast with costs set to rise after union deal

United Parcel Service Inc. lowered its full-year profit forecast as the courier contends with shifting consumer habits and rising costs after a tentative labor agreement.

Revenue is expected to be $93 billion in 2023, down from its prior forecast of $97 billion, UPS said Tuesday in a statement. UPS now expects an adjusted operating margin this year of 11.8%, compared with an earlier forecast of 12.8%. 

UPS said the guidance change was “primarily to reflect the volume impact from labor negotiations and the costs associated with the tentative agreement” that was reached on July 25. The stock fell as much as 7.4% in premarket trading in New York. 

“We are pleased to have reached agreement with the Teamsters,” Chief Executive Officer Carol Tomé said in the statement. “Looking ahead, we will stay on strategy to capture growth in the most attractive parts of the market and make our global integrated network even more efficient.”

The stock this year had climbed 4.8% year through Monday, trailing an 18% gain in the S&P 500 Index. 

UPS is navigating a challenging environment marked by declining package volume, pushback from customers over pandemic-era price increases and rising expenses. The company will face higher labor costs after negotiating a five-year contract with the International Brotherhood of Teamsters that gives unionized workers hefty raises.

The union has said that the new labor contract adds $30 billion of new money, including for costs to add air conditioning to UPS delivery vehicles purchased after the end of this year. The contract still must be ratified by the 340,000 workers it covers and the results of that vote will be given on Aug. 22, the union has said. 

Analysts expect the company will give a detailed breakdown of the financial impact only after it’s ratified.

Adjusted earnings in the second quarter fell to $2.54 a share, UPS said. That beat the $2.50 average of analysts’ estimates. Revenue was $22.1 billion, missing the consensus.  

During the second quarter, the adjusted operating margin was 13.2%, down from 14.4% a year earlier. 

Average daily volume fell 10% at the domestic unit, which makes up about two-thirds of UPS’s revenue, partially offset by a 3.3% increase in average price per package. Volume dropped 6.6% at the international unit because of “continued softness on Asia trade lanes.”