UPS Stock Plummets Over Weak Demand and Cost-Cutting Measures

Summary

  • UPS, an Atlanta-based company, experienced an 8% dip in shares, dropping to $145.32 on the New York Stock Exchange due to lackluster demand from its retail, manufacturing, and high tech customers.

  • The firm intends to reduce costs by $1 billion following a challenging year, resulting in a decline in volume, revenue, and operating profit across all segments, as explained by UPS CEO Carol Tome.

  • UPS is looking for innovative ways to offer the low-margin services that Coyote provides, without the extra costs.

  • The company does not forecast improvements in the business environment until the latter half of 2024, with anticipated full-year revenue falling short of analysts’ target.

  • Both UPS and FedEx have reduced their forecasts due to uncertainties in business conditions.

  • Increase in labor costs due to a new contract with its Teamsters union are further impacting UPS’ profits.

  • UPS expects a rise in average daily volumes by the second half of the year, albeit with constraints on growth.

  • Customers are transitioning from more profitable air-based services to less profitable land-based delivery, impacting both UPS and FedEx’s profits.

Downfall of UPS Shares

UPS, headquartered in Atlanta saw their shares plunge 8% to $145.32 on the NYSE. The fall was due to poor demand from their retail, manufacturing, and hi-tech customer base. The company is strategizing to cut down $1 billion in costs after a challenging year which saw all business segments suffer a decrease in volume, revenue, and operating profit.

Striving for Innovation

CEO Carol Tome expressed a desire for UPS to discover new methods of delivering the low-margin services provided by Coyote, without unnecessary overheads. She noted that while Coyote’s revenue peaked at $4 billion during the COVID-19 surge, it has considerably shrunk since then.

Gloomy Forecast for UPS

UPS, seen as an economic barometer for the global economy, anticipates business conditions to become favorable only in the second half of 2024. They predict full-year revenue between $92 billion to $94.5 billion, which falls short of the analysts’ target according to LSEG data. Other delivery companies like FedEx experienced a boom, but have also been forced to scale back their projections due to the unpredictable business climate.

Impact of Higher Labor Costs

Higher labor costs from a new agreement with its Teamsters union are affecting UPS’ profit margins. The company expects to report its lowest consolidated operating margin of the year in Q1, according to CFO Brian Newman.

Market Prediction and Delivery Shift

UPS foresees a volume growth in the latter half of the year but expects the growth to be confined. Tome anticipates a meager increase of less than 1% in the small package market in the U.S. (excluding Amazon) which represents 11.8% of UPS’ revenue. A shift in customer preference from air to ground delivery is impacting profitability at both UPS and FedEx.

Q4 Earnings Report

For Q4, UPS reported a 6.9% reduction in revenue from its air-based international segment due to a severe slump in Europe and a 7.3% drop in its truck-based U.S. business. The quarterly revenue of $24.9 billion, was down by 7.8% from a year earlier, missing the analysts’ target. The adjusted profit saw a drop of 31.8% to $2.47 per share but surpassed the analysts’ estimate by one cent.

These developments in UPS could impact trading, potentially influencing the forex market and associated assets.

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