United Parcel Service Inc. said annual sales will come in at the low end of its guidance as U.S. retail sales slow. This slowdown impacted demand for UPS delivery.
Revenue will be at the bottom end of the range of $97 billion to $99.4 billion provided in January, the company said April 25 in a statement. Sales were $22.9 billion, in line with analysts’ expectations.
Retail demand is down
“In the first quarter, deceleration in U.S. retail sales resulted in lower volume than we anticipated, and we faced ongoing demand weakness in Asia,” CEO Carol Tomé said in the statement.
The decline in package demand from pandemic highs tests Tomé’s strategy of focusing on the small businesses, health-care providers and other high-paying customers to boost profit margins while curtailing service to some large ecommerce companies, such as Amazon.com Inc., that negotiate more discounts.
Management is also leaning on technology to boost efficiency, including putting radio frequency identification tags on all packages to reduce mistakes while sorting and loading packages into delivery trucks.
The courier faces the possibility of a union strike from its 330,000 workers as the company negotiates to replace a five-year labor contract that expires July 31. Some customers have diverted package volume to rivals, including FedEx Corp., in case there’s a work stoppage. Tomé has said she expects to find middle ground with the union and reach a new contract before the strike deadline.
UPS’s adjusted operating profit margins fell to 11.1% from 13.6% a year earlier. The courier also adopted the low end of its January guidance on 2023 profit margins of 12.8% to 13.6%.
“Over the first quarter of 2023, the global volume environment deteriorated due to challenging macro conditions and changes in consumer behavior,” UPS said in the statement.
Pressures on UPS are likely to continue
The company’s U.S. domestic unit, which makes up about two-thirds of sales, saw parcel volume drop 5.4% even as revenue per package rose 4.8%. Revenue dropped almost 7% at the international business as volume fell 6.2%. Sales at supply chain solutions, which among other things provides freight brokerage, plummeted more than 22% as cargo prices decline.
Package demand is expected to continue “under pressure,” the company said.
“We will remain focused on driving productivity while investing in efficiency and growth initiatives, enabling us to come out of this demand cycle even stronger,” Tomé said.
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