UPS tempers 2023 revenue view as freight volumes remain strained

By Priyamvada C

(Reuters) – United Parcel Service Inc (NYSE:) on Tuesday pegged annual revenue at the lower end of its prior forecast and warned of persistent pressure on parcel volumes, deepening the gloom for the inflation-hit shipping industry.

Most delivery firms have been left with a bloated delivery capacity after 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 volume 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.

The commentary from the world’s largest parcel delivery firm dampened hopes of some respite for the shipping industry in the second half of the year.

Shares of UPS fell 7.5% to $181 in morning trade after the company forecast full-year revenue of about $97 billion, at the lower end of an earlier estimate of $97 billion to $99.4 billion. Analysts were expecting $98.14 billion, according to Refinitiv data.

Rival FedEx Corp (NYSE:)’s shares also fell 2%.

UPS also 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.

UPS in recent quarters has also benefited from a strong focus on moving high-margin parcels.

The company reported an adjusted profit of $2.20 per share, compared with analysts’ average estimate of $2.21.

“Q1 2023 revenues 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.

The company’s revenue of $22.93 billion fell short of estimates of $23 billion.