UPS' stock rises after profit extends long streak of beats as deliveries improve

By Tomi Kilgore

Operating profit drops more than 30% due mostly to higher labor costs in wake of new Teamsters contract

Shares of United Parcel Service Inc. turned higher Tuesday, after the package-delivery giant extended its long streak of quarterly profit beats but once again reported revenue that fell below forecasts.

The company said, however, that while first-quarter average daily volume of packages delivered in the U.S. fell from a year ago, the rate of declines slowed as the quarter progressed, and showed "marked improvement" from the fourth quarter.

The stock (UPS) rallied 2% in midday trading, and has climbed 4.3% amid a four-day win streak. The stock initially jumped after results were reported, then swung to a premarket loss of as much as 3% before bouncing back after the opening bell.

Net income for the first quarter fell to $1.11 billion, or $1.30 a share, from $1.9 billion, or $2.19 a share, in the same period a year ago.

Excluding nonrecurring items, adjusted earnings per share of $1.43 beat the FactSet consensus of $1.28. That marked the 16th straight quarter that UPS beat adjusted EPS expectations, according to FactSet data.

Operating profit, which excludes expenses such as employee wages, repairs and maintenance and fuel costs, sank 36.5% to $1.61 billion, which for the most part was because of the new contract with Teamsters union, announced in July 2023.

Total revenue declined 5.3% to $21.71 billion, below the FactSet consensus of $21.84 billion. That was the sixth straight quarter that revenue fell below forecasts, and the seventh straight miss.

"While the macro environment in the first quarter showed improvement in some areas, continued soft demand pressured all three parts of our business," said Chief Financial Officer Brian Newman in the post-earnings call with analysts, according to an AlphaSense transcript.

U.S. domestic-package revenue was down 5% to $14.23 billion, missing the FactSet consensus of $14.43 billion.

Average daily volume decreased 3.2% from last year, but that compared with an ADV decline of 7.5% in the fourth quarter. And average revenue per piece slipped 0.3% from a year ago, after being "slightly positive" in the previous quarter.

For International, revenue fell 6.3% to $4.26 billion to miss expectations of $4.31 billion, "as the macro environment remained challenged, primarily in Europe and Asia," Newman said. Average daily volume was down 5.8% but average revenue per piece was up 2%.

Supply chain revenue was down 5.3% to $3.22 billion, but topped expectations of $3.19 billion.

Regarding the outlook for the air cargo business it won from the U.S. Postal Service, which was announced earlier this month, Chief Executive Carol Tomé said the business contribute to revenue growth and improve operating margins.

Tomé said there is "plenty of space" on existing aircraft to handle the USPS business. So the company won't need to buy any aircraft, it will hire some pilots, but less than 200, Tomé said.

As CFO Newman said, "this is a good business for us, and we are moving quickly to begin onboarding this cargo."

For 2024, the company affirmed its revenue guidance range of $92 billion to $94.5 billion, which surrounds the current FactSet consensus of $93.05 billion. The company also kept its capital expenditure plans unchanged at $4.5 billion.

The stock has gained has lost 5.7% year to date, while shares of rival FedEx Corp. (FDX) have gained 7.7% and the S&P 500 index has advanced 6.1%.

-Tomi Kilgore

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04-23-24 1145ET

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