Los Angeles, California – United Parcel Service (UPS) announced a stronger-than-expected quarterly profit amidst challenges in the delivery services sector. The company’s first-quarter adjusted profit came in at $1.43 per share, a decrease of 35% from the previous year but surpassing analysts’ estimates of $1.29 per share. Revenue reached $21.7 billion, slightly below analysts’ target of $21.9 billion.
Despite a 3.2% decline in average daily volumes in its U.S. operations and a 5.8% drop in its international segment, UPS noted an improvement in volumes as the quarter progressed. Revenue in both divisions fell short of expectations, prompting the company to focus on higher-margin deliveries for small businesses and healthcare entities. UPS aims to double its healthcare-related revenue to $20 billion by 2026.
The company reported an adjusted operating margin of 8% for the quarter, down from approximately 11.1% in the previous year. Analysts predict a challenging business environment in the first half of the year, with conditions expected to improve in the second half.
Jonathan Chappell, an equity analyst at Evercore ISI, acknowledged UPS’s efforts in expense control but highlighted the company’s struggles in recent quarters. UPS secured a significant contract with the U.S. Postal Service, displacing FedEx as the agency’s primary air cargo service provider. The deal, worth over $1.7 billion to FedEx in fiscal 2023, is a notable win for UPS.
In an attempt to streamline operations and cut costs, UPS announced plans to eliminate 12,000 non-union jobs earlier this year as part of a larger cost-cutting initiative. The company is also navigating higher labor expenses stemming from its new Teamsters contract.
Looking ahead, UPS remains focused on enhancing its business strategies to navigate the evolving landscape of package delivery services. Despite facing various challenges, including soft demand and increased labor costs, UPS continues to adapt and innovate in response to market dynamics. UPS shares held steady at $144.75 in premarket trading following the earnings report.