UPS Lowers Annual Forecast Following Sharp Drop in Q3 Profits Amid Rising Labor and Fuel Expenses

Highlights

• UPS faced significant reductions in revenue and earnings in Q3, driven by decreased demand and rising labor and fuel expenses.
• The company adjusted its full-year financial guidance downward.
• Following the announcement, UPS stock fell more than 5% in early trading.

On Thursday, United Parcel Service (UPS) revealed a sharp downturn in both revenue and profits for the third quarter, impacted by lower demand and economic pressures related to labor and fuel costs. This led the company to scale back its annual forecast, causing shares to drop in early market activity.

Revenue for the quarter declined 13% year-over-year to $21.1 billion, missing analyst predictions. Adjusted earnings per share were $1.57, surpassing expectations but reflecting a 48% decrease compared to the previous year.

CEO Carol Tomé stated in a press release that "challenging macroeconomic conditions adversely affected global demand during the quarter." She also noted that some shipping volume shifted to competitors amid labor contract negotiations with Teamsters workers over the summer.

While traffic has begun returning to UPS since resolving the contract dispute, the company lowered its full-year revenue forecast to a range between $91.3 billion and $92.3 billion. Additionally, it reduced its adjusted operating margin estimate to between 10.8% and 11.3%, citing ongoing global economic uncertainties. Previously, UPS anticipated $93 billion in revenue and an 11.8% operating margin for the year.

During the summer, UPS attracted significant attention due to tense labor negotiations. Anticipated shipping volume declines were linked to strike threats and potential service disruptions. The new five-year labor agreement, extending through 2028, is expected to cost UPS less than $30 billion, as projected by the union. However, nearly half of the associated wage and benefit expenses will be recorded in the current year, potentially impacting short-term earnings.

Rising labor and fuel costs further pressured third-quarter expenses, reducing profitability. Labor costs increased even prior to the expiration of the previous union contract, while oil prices surged by approximately 33% from June to late September.

As of 10:30 a.m. ET on Thursday, UPS shares had declined over 5%, trading at their lowest level since July 2020 and down more than 20% year-to-date.

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