United Parcel Service
stock is dropping after the shipping giant posted weaker-than-expected operating profit. The initial outlook for 2024 isn’t helping either.
UPS reported a fourth-quarter operating profit of $2.5 billion and earnings per share of $2.47 from sales of $24.9 billion Tuesday morning. Wall Street was looking for UPS to report an operating profit of $2.8 billion and earnings per share of $2.44 from sales of $25.4 billion, according to Bloomberg.
A year ago, UPS reported an operating profit of $3.2 billion and EPS of $3.62 from sales of $27 billion. Weaker volumes from a slowing economy are partly responsible. Labor negotiations also are to blame—some businesses left the UPS network to avoid being caught in a potential work stoppage.
Volumes in the U.S. dropped 7.4% year over year in the fourth quarter. International volumes dropped 8.3%.
UPS stock was down 4.6% at $150.70, in premarket trading, while
S&P 500
and
Nasdaq Composite
futures were both down about 0.1%.
While UPS managed to avoid a strike with the Teamsters union, the new labor deal created another issue. Workers received big wage increases to help offset high inflation in recent years.
It is hard for UPS to raise prices all at once to offset labor cost pressures. The company plans to increase prices over time, which will help restore margins to older, higher levels.
“2023 was a unique and difficult year and through it all we remained focused on controlling what we could control, stayed on strategy, and strengthened our foundation for future growth,” said CEO Carol Tomé in a news release.
UPS generated an operating profit margin of almost 14% in 2022. Margins are expected to come in just below 11% in 2023. Wall Street projects margins will improve by roughly 0.5 percentage points a year on average for the coming three years, moving back to about 12.5% by 2026.
Wall Street looks to have gotten the pace of improvement wrong. For 2024, UPS guidance implies an operating margin of about 10.3% and an operating profit of about $9.6 billion from sales of $93.3 billion. Wall Street was looking for an operating profit margin of about 11.3% and an operating profit of $10.7 billion from sales of $95.7 billion.
The company hosts a conference call at 8:30 a.m. Eastern time to discuss results. Analysts and investors will want more detail about what’s holding profit margins back.
Options markets imply the stock will move about 5%, up or down, following earnings. Shares have moved roughly 5% up or down after the past four quarterly reports. Shares have risen once and fallen three times over that span.
Coming into Tuesday trading, UPS stock was down about 11% over the past 12 months, while the S&P 500 and Nasdaq Composite were up about 23% and 27%, respectively.
Write to Al Root at [email protected]
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