UPS lowers 2023 forecast after Teamsters union agreement

UPS lowered its full-year outlook on Tuesday, citing a bigger than expected hit to volumes from recent labor talks as executives described the new contract as a "win win win."

The delivery company, which reached a tentative new labor agreement last month with the Teamsters union to avert a strike, experienced a loss of 1.2 million packages a day due to strike fears, most of it from customers who diverted volumes to other users.

Chief Executive Carol Tome said UPS was working hard to win back the business, describing the certainty of the agreement as a key element of long-term profitable growth.

"We believe this contract is a win, win, win," Tome said on a conference call with analysts. "We have the best people and our new contract continues to reward our employees with the best pay and benefits in our industry."

UPS now expects 2023 revenues of about $93 billion, down $4 billion from the prior outlook. The company also cut its adjusted profit margin by a percentage point to 11.8 percent.

The hit to margins reflects wage increases associated with the contract, executives said.

Facing threats of a bruising nationwide strike slated to begin August 1, UPS agreed on July 25 to broad-based wage hikes and additional employee benefits in a negotiation that has been seen as a win for organized labor.

Rank-and-file workers are voting on the new UPS contract through August 22.

However, the threat of a strike prompted some UPS customers to divert orders to competing services, adding to the effects of a shift among consumers towards services and travel, and away from goods after the heady consumption of the early Covid-19 period.

UPS' revenues tied to e-commerce are reverting to pre-Covid trends after the business "blew up" during Covid-19, Tome said.

Profits in the second quarter dipped five percent to $2.1 billion, while revenues dropped 11 percent to $22.1 billion.

Executives said about 40 percent of the added labor costs will take effect in the first year of the contract, with much smaller increases in the following three years.

Tome said UPS agreed to front load much of the wage increase because it was "very important" to Teamsters' negotiators. That will increase UPS' profit pressures in the near-term, but cost inflation will be "very manageable" in the later years, she said.

Shares of UPS fell 2.6 percent to $177.35 in morning trading.