UPS quarterly profit falls on high labor costs, weak small-package demand

(Reuters) -United Parcel Service reported a decline in second-quarter earnings on Tuesday after subdued package delivery demand and higher costs from its Teamsters labor contract squeezed profits.

Shares of the delivery company, seen as a bellwether for the global economy, were down about 7% in premarket trade.

UPS, FedEx (NYSE:) and other home delivery providers have been slashing costs since the end of home-bound consumers’ early pandemic e-commerce binge in late 2021. Demand for doorstep delivery has since been stubbornly lackluster, in part due to higher costs for food and shelter.

The world’s biggest package delivery firm by market capitalization posted an adjusted profit of $1.79 per share for the quarter, down from $2.54 a year ago.

The company expects cost pressures to ease and for revenue and volume to improve in the second half of the year.

Atlanta-based UPS will absorb 46% of wage and benefit costs from its five-year Teamsters contract in the first year that ends this month.

Meanwhile, it is fighting to regain business it lost to rival FedEx during its tumultuous labor negotiations in 2023.

UPS reported second-quarter revenue of $21.8 billion, down 1.1% from last year. Revenue per piece declined 2.6% in the domestic segment, while average daily volume fell 2.9% in the international business.

However, in an upside for the company, in October it will replace FedEx as the primary expedited air service provider for the U.S. Postal Service (USPS). UPS expects the five-year contract to be profitable in its first year. That business generated $1.75 billion in revenue in fiscal 2023 for FedEx, which said it was a drain on profits.