Quiver Quantitative - United Parcel Service (NYSE:UPS), a bellwether in the global logistics industry, has announced significant restructuring plans, including a reduction of 12,000 jobs and a strategic review of its Coyote trucking brokerage business. This move comes as UPS forecasts full-year revenue below analysts' expectations, signaling a challenging phase for the world's largest parcel delivery company. Shares of Atlanta-based UPS dropped 8% to $145.32 on the New York Stock Exchange, reflecting investor concerns over weak demand from key sectors such as retail, manufacturing, and high-tech.
The company is set to implement cost-cutting measures totaling $1 billion following a year described as "difficult and disappointing" by CEO Carol Tome. This statement came during a conference call with analysts, where Tome highlighted declines in volume, revenue, and operating profit across all business segments. A critical element of UPS's strategy involves reassessing the low-margin Coyote business, which experienced a revenue peak during the COVID-19 pandemic but has since seen a significant downturn.
Market Overview: -UPS plunges 8% as weak demand and profit declines prompt 12,000 job cuts and strategic review of volatile trucking brokerage Coyote. -Global delivery giant forecasts full-year revenue below expectations, dampening sentiment for the bellwether of economic health. -Rising labor costs from the Teamsters contract and shift towards slower ground shipping further squeeze margins.
Key Points: -The world's largest parcel delivery company cites "difficult and disappointing" 2023, marked by volume, revenue, and operating profit drops across all segments. -To compensate, UPS implements a $1 billion cost-cutting plan, including the job cuts and exploring alternatives for the "very low-margin" Coyote business. -While UPS expects second-half improvement, its 2024 revenue forecast falls short of analyst targets, indicating continued economic uncertainties. -The pandemic boom for delivery firms fades as consumer spending habits normalize and inflationary pressures dampen e-commerce. -Higher labor costs from the new Teamsters deal and a shift towards less profitable ground delivery further weigh on margins. -Despite regaining some business lost during its labor contract dispute, UPS faces a sluggish US small package market and increasing competition.
Looking Ahead: -UPS's cautious forecast suggests a bumpy road ahead for the delivery giant. -Investor focus will shift to how effectively the company executes its cost-cutting plans and navigates the evolving market dynamics. -The success of Coyote's strategic review and potential buyer interest will be closely monitored. -Broader economic factors like inflation and consumer spending trends will be critical for UPS's near-term and long-term recovery.
Amidst a still-uncertain business environment, UPS's forecast for 2024 indicates conservative revenue estimates of $92 billion to $94.5 billion, falling short of the $95.57 billion target expected by analysts, according to LSEG data. This cautious approach is likely influenced by broader market trends, where an initial pandemic-fueled boom in delivery services has reversed as consumer behavior shifted back to pre-pandemic activities. Inflationary pressures further exacerbate this trend, impacting e-commerce purchasing and leading to forecast adjustments by UPS and competitors like FedEx (NYSE:FDX).
The upcoming year poses several challenges for UPS, including the impact of higher labor costs from its new Teamsters union contract and a shift in customer preferences towards less profitable ground-based delivery services. These factors are expected to contribute to a constrained growth outlook and a dip in profits, particularly in the first quarter. Despite these headwinds, UPS remains optimistic about regaining market share lost to rivals during its labor negotiations and anticipates a pickup in average daily volume in the latter half of the year.
This article was originally published on Quiver Quantitative