Shares of United Parcel Service Inc. experienced their largest drop in over 15 years after the delivery giant reported earnings that fell significantly short of Wall Street’s expectations. This decline was attributed to rising wage inflation and weak service demand.
In a statement on Tuesday, UPS announced an adjusted earnings per share of $1.79 for the second quarter. Analysts had anticipated an average profit of $1.98 per share, according to estimates compiled by Bloomberg. Revenue also fell below expectations.
These disappointing results represent a setback for UPS, which is grappling with rising labor costs amid a weakened demand environment. This comes in the wake of a surge in e-commerce deliveries fueled by the pandemic. Investors had already expressed skepticism about the company’s ability to meet its long-term sales target announced back in March.
Stephanie Moore, an analyst at Jefferies, noted in a research report that this quarter marks a new decline in investor sentiment towards UPS stock. Following the market opening in New York on Tuesday, UPS shares plummeted by more than 11%, marking their most significant intraday decline since October 2008. Prior to this drop, the stock had already fallen 7.7% this year as of Monday’s close.
To address its financial challenges, UPS is working on reducing expenses while aiming to enhance its operating margin in the coming years. In January, the company announced a plan to save $1 billion by cutting 12,000 management jobs. Based in Atlanta, UPS indicated that labor costs would increase due to a new contract with the Teamsters union, finalized about a year ago.
In the second quarter, the average daily package volume saw a slight increase to 20.93 million, just below analysts’ estimates of 20.96 million. Although the company had anticipated a decrease in operating profit, volume growth was recorded for the first time in nine quarters, a moment that CEO Carol Tomé described as a significant turning point for the company.
Looking ahead, a new contract with the U.S. Postal Service could provide additional support in the latter half of the year. The third and fourth quarters typically bring peaks in shipping demand, along with surcharges related to the holiday season.
UPS lowered its full-year revenue forecast to $93 billion, down from a previous estimate of up to $94.5 billion. The company has also restarted a stock repurchase program with an annual target of around $1 billion.
Brandon Oglenski, an analyst at Barclays, commented that the unexpectedly weak results would likely leave investors feeling uncertain about the company’s prospects.
These announcements came just a day after UPS revealed its acquisition of the Mexican delivery company Estafeta. UPS has identified international expansion, particularly in Mexico as a nearshoring destination, as one of its key growth priorities.
Source: https://www.perfil.com/noticias/bloomberg/bc-ups-registra-mayor-caida-en-15-anos-tras-resultados-bajo-lo-esperado.phtml
