United Parcel Service (NYSE:UPS) reported a significant drop in profits for the second quarter of the fiscal year, causing its shares to tumble by 8% in pre-market trading on Tuesday. The shipping giant’s net income fell by 32% to $1.41 billion, down from $2.08 billion the previous year, missing analysts’ estimates. Revenue from UPS’s shipping operations also declined by just over 1% to $21.8 billion, below the expected $22.18 billion.
The decrease in profits and revenue can be attributed to a pullback from the peak demand experienced during the pandemic. UPS, along with its competitor FedEx, has seen a decline in demand for package deliveries as the economy gradually returns to normalcy.
As a response to the challenging financial results, UPS has narrowed its revenue outlook for the full fiscal year to around $93 billion. The company has also adjusted its operating margin projections to approximately 9.4%, down from the previous estimate of 10% to 10.6%. Despite the current setbacks, UPS CEO Carol Tomé remains optimistic about the company’s future growth prospects.
Tomé announced that UPS returned to volume growth for the first time in nine quarters, indicating a positive trend in shipping activity. This growth trajectory is expected to contribute to an increase in profits in the second half of 2024. Additionally, UPS plans to restart its stock buyback program, with $500 million allocated for the remainder of 2024 and a target of $1 billion annually going forward.
In response to the disappointing earnings report, UPS shares were down 8% at $133.54 as of 8:20 a.m. ET on Tuesday. The company’s efforts to adjust its revenue outlook and implement a new stock buyback program reflect its commitment to navigating through challenging market conditions and positioning itself for future growth.
Footnotes:
- https://www.investopedia.com/articles/markets/120115/ups-vs-fedex-comparing-business-models-and-strategies.asp
- https://www.investopedia.com/articles/02/041702.asp