UPS Projects Profit Decrease Following Teamsters Agreement; Stock Takes a Hit

United Parcel Service (UPS) has announced a significant decline in both revenue and profit for the second quarter. This revelation accompanies a reduction in its profit forecast, as the company prepares for narrower margins following its tentative agreement with the Teamsters union.

The impact of these developments was evident as UPS shares experienced a nearly 4% premarket trading drop in response to the report.

During the second quarter, UPS reported adjusted income of $2.2 billion, marking a 24% decrease compared to the same period a year earlier. While this figure was slightly better than Refinitiv's surveyed analysts' estimates, the company's revenue witnessed a notable 11% decline to reach $22.1 billion.

Furthermore, UPS adjusted its full-year revenue projection, scaling it down by $4 billion to $93 billion. The company cited a series of factors contributing to this adjustment, including business losses during labor negotiations and a notable decrease in online purchases. It also acknowledged that its full-year profit margin is anticipated to be 1% lower than initially projected due to the costs associated with the labor agreement with the union.

A portion of the decline in shipment volumes took place before shippers began shifting away from UPS in July, prompted by stalled negotiations. The subsequent three-week hiatus in discussions prompted many customers to migrate their business to alternative carriers, safeguarding themselves against the threat of a potential strike.

The second-quarter results disclosed a 10% decline in domestic package volume for UPS, while international shipments experienced a nearly 7% reduction. This outcome aligns with the company's previous warning three months ago, signaling an anticipation of lower volumes amidst an economic softening.

Despite the challenges posed by lower revenue and altered earnings expectations, UPS remains committed to its financial strategy. The company maintains its plan to distribute $5.4 billion in dividends and execute share repurchases amounting to $3 billion.

A pivotal moment arrived on July 25 when UPS reached a tentative agreement with the Teamsters, narrowly preceding an August 1 strike deadline. Currently, the 340,000 members of the union employed by UPS are engaged in voting to ratify the proposed deal. Results of the vote are set to be revealed on August 22, shedding light on the future course of action for both the company and its labor relations.

Also Read: UPS Strike Poses Significant Threat to US Economy, Creating Concerns for Supply Chains and Consumers