United Parcel Service (UPS.N) announced better-than-expected quarterly earnings, navigating a period of softer demand for package deliveries with strategic cost reductions.
Despite these challenges, the global leader in parcel delivery is also contending with increased labor expenses due to a new Teamsters contract.
To mitigate rising costs, UPS initiated a significant reduction in its workforce, announcing in January the elimination of 12,000 non-union positions, aiming to cut $1 billion in expenses throughout the year.
For the first quarter, UPS reported an adjusted profit of $1.43 per share, a 35% decrease from the previous year, yet surpassing analysts’ expectations of $1.29 per share based on LSEG data.
However, the company’s revenue fell slightly short of forecasts, tallying $21.7 billion against an anticipated $21.9 billion.
This downturn reflected in its daily volume metrics, with a 3.2% decline in its crucial U.S. operations and a 5.8% reduction internationally.
Despite these decreases, the company noted that “volumes showed improvement through the quarter.”
Revenue performance in both the domestic and international sectors did not meet expectations, according to Jonathan Chappell, an equity analyst at Evercore ISI.
In response, UPS is strategically shifting its focus toward higher-margin deliveries, particularly targeting small businesses and healthcare companies.
The firm has set an ambitious goal to double its healthcare-related revenue to $20 billion by 2026.
The company’s adjusted operating margin for the quarter stood at 8%, a decline from approximately 11.1% in the previous year.
This quarter’s margin is expected to be the lowest in 2024, with an anticipated improvement in business conditions during the second half of the year.
Chappell noted that although “UPS has been out of favor for several quarters,” the company has demonstrated efficacy in managing expenses.
In a notable development, UPS secured a significant contract with the U.S. Postal Service, supplanting FedEx (FDX.N) as the largest air cargo service provider for the agency—a contract previously worth over $1.7 billion to FedEx in fiscal 2023.
Despite these strategic moves and contract wins, UPS shares remained largely stable, priced at $144.75 in premarket trading.