UPS tempers 2023 revenue view as freight volumes remain strained

11:42 am Tuesday, April 25th, 2023

By Priyamvada C

(Reuters) -United Parcel Service Inc on Tuesday pegged annual revenue at the lower end of its prior forecast and warned of persistent pressure on parcel volumes, sending shares of the world’s largest parcel delivery firm sharply down.

The commentary from the freight bellwether could mean a delayed recovery in volumes for the shipping industry that was expecting some relief by second half of the year.

Shares of rival FedEx Corp fell 3%, while trucking firms J.B. Hunt Transport services Inc, XPO Inc and Old Dominion Freight Line Inc slipped between about 1% and 3%.

Most delivery firms are struggling with a bloated delivery capacity as online sales that had peaked during the pandemic started to fizzle as high inflation dented discretionary spending.

“Deceleration in U.S. retail sales resulted in lower volumes than we anticipated, and we faced ongoing demand weakness in Asia … Given current macro conditions, we expect volumes to remain under pressure,” UPS CEO Carol Tomé said.

“U.S. discretionary sales are lagging grocery and consumable sales, and disposable income is shifting away from goods to services,” Tomé added during a conference call with analysts.

UPS reported revenue of $22.93 billion in the first quarter, which fell short of analysts’ average estimate of $23 billion, according to Refinitiv data.

“Q1 2023 revenue of $22.9 billion (6% YoY decline) for UPS demonstrates that the economy is slowing and the company is seeing volume risk in 2023,” Third Bridge analyst Anthony DeRuijter said.

Shares of UPS fell 9.2% and were set for the worst day since early 2015 if losses held, after the company also forecast full-year revenue of about $97 billion, at the lower end of its prior forecast of $97 billion to $99.4 billion, compared with analysts’ estimates of $98.14 billion.

UPS expects 2023 adjusted operating margin of about 12.8%, compared with its prior forecast of 12.8% to 13.6%.

Still, Atlanta-based UPS has been managing costs better than rival FedEx, despite having a unionized workforce, and has benefited from a strong focus on moving high-margin parcels.

UPS reported an adjusted profit of $2.20 per share in the first quarter, compared with analysts’ average estimate of $2.21.

(Reporting by Priyamvada C in Bengaluru; Editing by Shinjini Ganguli and Devika Syamnath)