United Parcel Service Inc. plans to cut 12,000 jobs and explore the sale of its Coyote truck brokerage business in moves CEO Carol Tomé is taking to offset soft demand and higher union labor costs.
The jobs reduction will save $1 billion this year, Tomé said during an earnings conference call with analysts January 30. She also said the company planned to ask workers to return to the office five days a week in 2024.
The shares fell as much as 7.6% in early U.S. trading. After registering a 9.3% drop in annual sales, UPS forecast a 2024 upswing of as little as 1.1%. Soft demand in Europe and the U.S. led to an overall decline of 7.5% in fourth-quarter delivery volumes.
Higher labor costs and lower package demand resulted in fourth-quarter sales and 2024 guidance that missed analysts’ expectations. UPS is seeking alternative strategies for its truck brokerage business, which has seen sales plummet amid a freight recession marked by declining rates and over capacity.
“2023 was a unique and difficult year,”’ Tomé said in a statement. “Through it all, we remained focused on controlling what we could control, stayed on strategy and strengthened our foundation for future growth.”
Read more: UPS Chief Says Year One of Pricey New Labor Deal Will Hurt Most
The CEO is trying to win back business the shipper lost during contentious union talks last summer. Shipping demand has also flagged as people did more holiday shopping in stores post-pandemic and inflation crimped buying power. Tomé earlier warned that the new labor deal will hurt the company’s profit in the first half of 2024 because a good part of the wage increases come through in the first year. She said January 30 that UPS is focused on boosting efficiency and shifting to higher-profit deliveries such as medical supplies.
Sales for 2024 are expected to be between $92 billion and $94.5 billion, UPS said. That’s lower than the $95.7 billion midpoint of estimates from 30 analysts surveyed by Bloomberg News. The combined effects of the labor deal, which took effect August 1, and the sales outlook will squeeze profit — UPS predicts adjusted operating margins will be 10% to 10.6% for the year, below 2023’s 10.9% and analysts’ views of 11.3% for 2024.
UPS has reduced flights as air freight faced slack demand, especially from China, and excess capacity as airlines built out international schedules. It’s unclear whether recent shipping disruptions in the Suez Canal caused by Houthi rebel attacks and a drought that’s restricting ship movements through the Panama Canal will shift more business to air cargo.
Tomé plans to lay out long-term goals at an investor meeting in March.
Read more: Retailers Are Planning to Shake Things up in 2024, Survey Finds
Adjusted fourth-quarter earnings were $2.47 a share, down 32% from a year earlier, the Atlanta-based courier said in a statement. Analysts had expected $2.44. Sales were $24.9 billion, while analysts had predicted $25.4 billion. For 2023, revenue was $91 billion.
“Collectively, results were a bit better while guidance was worse,” Christian Wetherbee, an analyst with Citigroup, wrote in a note. He said he expects demand to remain soft in the first quarter.
Fourth-quarter package volume in the U.S. fell by 7.4% while the company held pricing stable. Sales for the international unit fell by 6.9% as soft demand in Europe caused parcel volume to drop 8.3%.
Supply Chain Solutions, which includes freight brokering and other businesses, saw revenue drop more than 11%.
UPS’s board approved an increase to the quarterly dividend to $1.63 per share. Capital spending is forecast at $4.5 billion.
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- Source: https://www.supplychainbrain.com/articles/38967-ups-to-cut-12-000-jobs-bring-workers-in-five-days-a-week
