UPS stock drops as weaker consumer demand hits volumes

Shares of UPS (UPS) fell on Tuesday morning as the shipping company said slowing consumer demand hurt its quarterly sales and 2023 outlook.

The delivery service posted revenue of $22.9 billion in the first quarter, down 6% from the same period last year. UPS’s adjusted earnings per share of $2.20 decreased 27.9%.

“In the U.S., relative to our baseline, volume was higher than expected in January, close to our plan in February, then fell significantly from our plan in March as retail sales slowed. are contracted and that we have seen a shift in consumer spending,” UPS CEO Carol Tomé said during the company’s earnings call.

She added that “discretionary sales in the United States are lagging grocery and consumables sales, and disposable income is shifting from goods to services.”

Nor does UPS expect things to get any better. It forecasts annual revenue of around $97 billion with an operating margin of around 12.8%. These numbers are at the lower end of the 2023 guidance ranges provided by the company in late January.

UPS shares fell 6.8% at market open, marking their biggest drop to open a trading session since July 2021. The stock was down more than 9% by mid-morning.

Signs of recession?

As management pointed out, the drop in UPS sales follows the general trend in U.S. retail sales, which fell on a monthly basis in February and March. The most recent print saw retail sales fall 1% in March. Economists had only expected a 0.5% decline, according to Bloomberg consensus data.

In March, FedEx (FDX) released quarterly results that ended Feb. 28 (a month earlier than UPS). FedEx also saw its earnings per share fall by double digits from the same period a year earlier and its revenues fall by low double digit percentages in all segments.

E-commerce giant Amazon (AMZN) will provide more visibility into the health of consumer spending when the company releases its first-quarter results on Thursday. Wall Street expects Amazon’s online store revenue to decline 1% from the previous one.

Investors are watching closely for signs that the US economy could slide into a recession as the Federal Reserve raises interest rates to fight inflation. The slowdown in consumer spending raises fears of a recession.

United Parcel Service (UPS) vehicles are seen at a facility in Brooklyn, New York, U.S., May 9, 2022. REUTERS/Andrew Kelly

United Parcel Service (UPS) vehicles are seen at a facility in Brooklyn, New York, U.S., May 9, 2022. REUTERS/Andrew Kelly

Thursday’s preliminary reading of the first-quarter gross domestic product report should give Wall Street another look at the health of the economy. Economists forecast growth of 2%, although Oxford Economics notes that much of that growth occurred in January.

“Early signs are that tighter bank lending standards are starting to bite, but the full impact on activity won’t be evident until later this year,” wrote Michael Pearce, chief US economist at Oxford Economics. , in a note last week.

UPS executives also pointed to a deteriorating macro environment outside the United States.

UPS’s domestic segment held up the best, with volume down 5.4%. In a sign that lingering inflation continues to hit parcel prices, a 4.8% increase in revenue per piece helped offset the drop in parcels shipped.

Internationally, revenue and daily volume fell more than 6%, which UPS attributed to weakness in China. Supply chain solutions saw the largest decline for UPS in the first quarter, with revenue down 22.5%.

“Outside of the United States, export activity outside of Asia remained weak, which negatively impacted international solutions and supply chain revenue,” Tomé said. “In response, we focused on controlling what we could control. We remained disciplined on pricing.”

Josh is a reporter for Yahoo Finance.

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