United Parcel Service
stock dropped Tuesday after the shipping giant posted weaker-than-expected operating profit for the fourth quarter.
The initial outlook for 2024 isn’t helping either, and the company is cutting some 12,000 jobs as it tries to control costs.
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 an operating profit of $2.8 billion and earnings of $2.44 a share from sales of $25.4 billion, according to Bloomberg.
A year ago, UPS reported an operating profit of $3.2 billion and earnings of $3.62 a share 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. declined 7.4% year over year in the fourth quarter, while international volumes dropped 8.3%.
UPS stock dived 8.2% to $1145.08 in early trading Tuesday, while the
S&P 500
and
Nasdaq Composite
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 came 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.
Bernstein analyst David Vernon called the guide “miserable” in a Tuesday report. He rates UPS shares Buy and has a $202 price target for UPS stock.
Management said on its earnings conference call that it would lay off 12,000 employees to help cut $1 billion in annual costs. How much of that $1 billion is embedded in 2024 guidance isn’t clear. The company didn’t immediately respond to a request for comment.
Options markets implied the stock will move about 5%, up or down, following earnings. Traders look like they estimated the post-earnings move wrong. 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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