UPS cutting costs, revenue and profit decline with slower retail sales

Shipper strikes upbeat tone on labor talks as it adjusts operations amid softer package demand
Driver Dan Partyka delivers an overnight package last year. As more people buy more goods online, the rapid and unrelenting expansion of e-commerce is causing real challenges for UPS.  (Bob Andres/Atlanta Journal-Constitution/TNS)

Credit: TNS

Credit: TNS

Driver Dan Partyka delivers an overnight package last year. As more people buy more goods online, the rapid and unrelenting expansion of e-commerce is causing real challenges for UPS. (Bob Andres/Atlanta Journal-Constitution/TNS)

Editor’s note: This story has been updated.

Sandy Springs-based UPS said it is cutting staff and plans to close some distribution sites and expand automation, as it reported its revenue and profit declined in the first three months of the year due to slower retail sales and international challenges.

The company also acknowledged it has lost some business amid contract negotiations with the Teamsters union, which has threatened to strike if a deal is not reached by Aug. 1.

UPS said its first quarter revenue declined 6% year-over-year to $22.9 billion, while its net income declined by 28.8% to $1.9 billion, according to results released Tuesday morning.

UPS CEO Carol Tomé said in a written statement that “deceleration in U.S. retail sales resulted in lower volume than we anticipated, and we faced ongoing demand weakness in Asia.”

“Given current macro conditions, we expect volume to remain under pressure,” she said. The company forecasts a 3% decline in U.S. domestic package volume this year versus 2022.

It’s a dim outlook from the shipping giant, a bellwether for the broader economy.

Consumers are spending more on essentials like groceries, which are more often bought in stores than shipped to doorsteps, and less on discretionary purchases, Tomé said. Disposable income is shifting from goods to services, she said.

In the U.S. domestic market, UPS saw a 5.4% decrease in average daily volume, as people ordered fewer items to be shipped than they had in the past.

That’s partly a decline due to the economy, and partly due to reduced volume of Amazon packages handled by UPS.

In response, the company cut hours by 5.6% and “reduced headcount throughout the quarter,” said UPS Chief Financial Officer Brian Newman. That cut expenses by more than $220 million. The company did not disclose how much it has cut its staff of more than 530,000.

“We’ll continue to reduce headcount as volume warrants,” Newman said.

UPS said it also nearly offset the decline in volume with a 4.8% increase in revenue per package.

Tomé said volume stabilized in April, giving executives “confidence that the volume will come back in the back half of the year.”

Still, the company plans to close some buildings used to distribute packages to cut costs and and consolidate into larger hubs with more automation. Newman said the company plans to sell some of its facilities later this year, and sees opportunities to further reduce overhead costs using technology.

“It is a changing culture” at UPS, Newman said. “It’s a pivot to be more optimized. ... We don’t have a history of closing or selling buildings, per se, but everything’s on the table.”

Internationally, UPS saw a 6.2% reduction in average daily volume and a 6.8% decline in revenue. As a result, it is cutting scheduled flights “to reflect lower market demand,” Newman said. The company also saw declines in its supply chain business.

The results come as the company this month entered negotiations for a massive new labor contract with the International Brotherhood of Teamsters, which represents about 330,000 of its workers. The Teamsters are pushing for pay raises and better working conditions.

Because of the strike threat, some customers have already shifted package volume away from UPS, according to Tomé.

“We are going to win it back,” she said.

UPS has also assigned 127 of its executives to more than 380 key customers to update them on the Teamsters negotiations “and to keep them with us,” Tomé said.

Tomé said UPS and the union “are aligned on several key issues, like solving the staffing needs for weekend delivery and ways to mitigate the summer heat and our package delivery vehicle.”

Tomé said she remains confident a deal will be reached by the end of July. She said there’s a pipeline of more than $6 billion in business UPS thinks it can win from new customers once it gets reaches a deal with the Teamsters.

UPS also adjusted its forecast for its performance for the full year 2023 to the low end of its financial targets announced in January. The company now expects to bring in $97 billion in 2023 revenue.

That would be a decline from the $100.3 billion in revenue UPS reported last year.