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Key Takeaways
- United Parcel Service is expected to post a 32% year-over-year drop in its earnings per share to $2.46, while its net income is expected to plunge 39%, as the company absorbs costs from its labor contract.
- Quarterly revenue is projected to fall 5.9% year-over-year to come in at $25.4 billion.
- The company pulled back on its revenue and operating margin outlook after it negotiated a new deal with the union representing more than 330,000 of its workers this summer.
After reaching a deal over the summer with its unionized workers, United Parcel Service (UPS) could still be struggling to absorb the effects of the labor contract when it reports earnings.
UPS is expected to report a 32% drop in its year-over-year earnings per share when it delivers its earnings report on Jan. 30 before markets open, according to data from Visible Alpha. The private package delivery service is also expected to report a 39% decline in net income to about $2.1 billion in the fourth quarter, while its projected revenue of $25.4 billion would represent a drop of 5.9% from 2022’s fourth quarter.
Over the summer, UPS averted a strike after it negotiated a new deal with the Teamsters union representing 330,000 of its workers, resulting in higher costs for the Atlanta-based company. The deal includes pay raises for workers, truck upgrades, and other conditions set out in the contract.
| Analyst Estimates for Q4 2023 | Q3 2023 | Q4 2022 | |
|---|---|---|---|
| Revenue | $25.4 billion | $21.1 billion | $ 27 billion |
| Earnings Per Share | $2.46 | $1.57 | $3.62 |
| Net Income | $2.1 billion | $1.1 billion | $3.5 billion |
Key Metric
The contract negotiations slowed UPS’s traffic as consumers prepared for a potential strike, but CEO Carol Tomé said during the company’s last earnings report that shipping volume was beginning to return. However, disruptions prompted UPS to drop its full-year operating margin to 10.8%, lowering it a second time from the 11.8% projection it made in July.
After reporting a steep decline in the third quarter, analysts are again expecting UPS to report lower operating margins at 11.07%. That’s more than 75 basis points lower than the 2022 fourth-quarter reading, but better than the drop of 650 basis points it reported in the prior quarter.
A better-than-expected operating margin could show that the company is making progress on integrating the conditions of the union contract.
Business Spotlight
Even before the contract negotiation, UPS struggled with lower deliveries and package volumes as lower global demand hamstrung the delivery service, leading it to scale back its full-year revenue target on its past two earnings reports. The company is also facing increasing competition from Amazon (AMZN), which reportedly surpassed UPS in shipping volume in 2022.
While UPS has seen a slowdown in the U.S., it hasn’t prevented the company from expanding its global footprint, with plans to open a healthcare facility in Dublin and a logistics facility in India. The company in October also purchased Happy Returns, a firm that specializes in facilitating returns on e-commerce purchases, as UPS moves to gain more delivery volume.
The slower delivery volumes and higher labor costs have had an impact on the company’s share price, which lost about 10.7% over the past year through Monday’s close to about $158 per share.