(Bloomberg) — United Parcel Service Inc. CEO Carol Tomé said the company was able to raise its US package delivery volume for first time in more than two years. It wasn’t enough.
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UPS shares tumbled the most in more than 15 years after the parcel giant missed profit estimates. It’s shipping more packages than a year ago, but they’re smaller and less profitable. Meanwhile, the company is dealing with an expensive new union contract negotiated by the Teamsters last year.
“We got off to a bit of a slow start, candidly,” Tomé said in an interview. “We wanted to start to see growth in the network in March. It didn’t happen until May.”
Customers are also down shifting to more economical UPS offerings, such as opting for slower ground shipping over air delivery.
UPS is counting on a recovery in volumes to help it overcome higher labor costs and skepticism from investors that it can achieve its longterm goal to boost margins.
“The fear from here is that the company is chasing volumes again as they add low-quality packages from new e-commerce customers,” Melius Research analyst Conor Cunningham wrote in a note.
Tomé’s turnaround strategy has so far relied on reducing spending while focusing on growing operating margin. In January, UPS unveiled a plan to save $1 billion by cutting 12,000 management jobs.
The chief executive officer said she has no plans to change course. “The destination is as clear as it was to us in March as it is today, it’s just the trajectory is a bit different,” she said in an interview. “The slope of the curve is going to be a bit steeper, but the end game doesn’t change.”
The Altanta-based company’s shares fell more than 13% on Tuesday, their largest intraday drop since October 2008. The stock had declined 7.7% this year through Monday’s close.
USPS Contract
A new contract with the US Postal Service could bring a boost in the second half of the year. The third and fourth quarters also bring peak shipping demand — and demand surcharges — around holiday season.
UPS narrowed its revenue guidance for the full year to $93 billion from a prior forecast of as much as $94.5 billion. The company also restarted a share buyback program targeting around $1 billion annually.
The results come a day after UPS announced the acquisition of Mexican parcel carrier Estafeta. UPS has pointed to international expansion, especially in the nearshoring destination of Mexico, as a top growth priority for the company.
(Updates throughout with context and CEO comments)
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