UPS misses quarterly estimates on high labor costs, weak small-package demand

United Parcel Service missed Wall Street estimates for second-quarter earnings on Tuesday, hurt by subdued package delivery demand and higher costs from its Teamsters labor contract.

Shares of the delivery company, seen as a bellwether for the global economy, were down 8% in premarket trading, while shares of rival FedEx fell about 2%.

UPS, FedEx and other home delivery providers have been slashing costs since the end of home-bound consumers' early pandemic e-commerce binge in late 2021. Demand for doorstep delivery has since been stubbornly lackluster.

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UPS posted an adjusted profit of $1.79 per share for the quarter, below analysts' estimates of $1.99, according to LSEG data.

The world's biggest package delivery firm by market capitalization also lowered its full-year adjusted operating margin forecast to 9.4%, from a range of 10.0% to 10.6%.

While a modest miss on estimates was anticipated, "the magnitude of the 2Q miss, coupled with the large downward revision to the full-year adjusted operating margin guide, will surprise even the biggest bears," Jonathan Chappell, equity analyst at Evercore ISI, said in a note to clients.

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UPS has been slashing costs to lift margins. In January, it said it would cut 12,000 jobs to save $1 billion.

It struck a deal in June to sell off its volatile truckload brokerage business, Coyote Logistics, for about $1 billion to RXO.

The company has said that it expects cost pressures to ease in the second half of the year, as a majority of the labor costs for the first year that rose as part of the new five-year Teamsters contract are absorbed by the second quarter.

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UPS reported second-quarter revenue of $21.8 billion, below analysts' estimates of $22.18 billion.

However, in an upside for the company, it will replace FedEx as the primary expedited air service provider for the U.S. Postal Service (USPS) in October. UPS expects the five-year contract to be profitable in its first year.