United Parcel Service (NYSE:UPS) has announced adjustments to its annual revenue and profitability forecasts due to a decline in shipping activity caused by labor unrest within its U.S. operations. As a consequence, the world’s largest package delivery company experienced a drop of over 2% in its stock value.
In an attempt to avert a labor strike, UPS (NYSE:UPS) secured a tentative five-year agreement with approximately 340,000 U.S. workers affiliated with the International Brotherhood of Teamsters union, just ahead of the July 31 contract expiration. However, the threat of a strike prompted customers to divert more shipments than anticipated to competing companies. CEO Carol Tome of UPS addressed this issue during a conference call with analysts.
Approximately one million packages per day were redirected to alternative providers, resulting in a revenue loss of around $200 million. Insights indicate that the U.S. Postal Service, FedEx (NYSE:FDX), and regional competitors each captured roughly one-third of this redirected business, as per Tome’s comments. She emphasized that concerted efforts are underway to recover the diverted volume stemming from the negotiation-related disruptions.
The decision by employees on whether to ratify the tentative agreement is scheduled to conclude on August 22. The agreement encompasses wage increases, the elimination of a two-tier wage structure for delivery drivers, the inclusion of an additional paid holiday, and the initiation of air conditioning installation in new delivery vehicles beginning next year. UPS has retained flexibility in terms of weekend services, temporary holiday personnel, and technology integration.
While UPS shares experienced a decline of approximately 2.8% during mid-morning trading, rival company FedEx observed an increase of over 1% in its stock value. UPS, headquartered in Atlanta, intends to disclose labor-related expenses subsequent to employee ratification.
Given the prevailing challenges, including sluggish e-commerce, weak export figures, and subdued industrial production, UPS (NYSE:UPS) and other logistics firms are grappling with a global decline in shipping demand, consequently exerting pressure on profit margins. To safeguard its earnings, UPS has been concentrating on the transportation of high-margin parcels, particularly within the healthcare and corporate sectors.
For 2023, UPS now predicts consolidated annual revenue to approximate $93 billion, as opposed to the previous estimate of $97 billion. Additionally, the company anticipates an adjusted operating margin of approximately 11.8% for the current year, in contrast to the earlier projection of around 12.8%. CEO Tome affirmed the company’s commitment to adhering to its strategic plan aimed at capturing growth opportunities within the most promising segments of the market.
During the second quarter, UPS (NYSE:UPS) recorded an adjusted profit of $2.54 per share, surpassing market expectations by 4 cents. However, revenue experienced a decline of roughly 11%, falling short of the estimated $23.1 billion.
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Author Faith Yakubu 
