(Bloomberg) — United Parcel Service Inc. Chief Executive Officer Carol Tomé said the company managed to increase its U.S. package delivery volume for the first time in more than two years. But it wasn’t enough.
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UPS shares suffered their biggest drop in more than 15 years after the delivery giant missed earnings estimates. It is shipping more packages than a year ago, but they are smaller and less profitable. Meanwhile, the company is grappling with a costly new union contract negotiated by the Teamsters last year.
“We started off a little slow, frankly,” Tomé said in an interview. “We wanted to start seeing growth on the network in March. It didn’t happen until May.”
Customers are also opting for cheaper UPS offerings, such as slower ground shipping instead of air shipping.
UPS is counting on a recovery in volumes to help it overcome higher labor costs and investor skepticism that it can meet its long-term goal of increasing margins.
“The fear going forward is that the company will once again chase volumes as it adds low-quality packages from new e-commerce customers,” Melius Research analyst Conor Cunningham wrote in a note.
So far, Tomé's turnaround strategy has been based on cutting spending and focusing on increasing operating margins. In January, UPS unveiled a plan to save $1 billion by eliminating 12,000 management positions.
The CEO said she has no plans to change course. “The destination is as clear to us as it was in March and it is today, it’s just that the trajectory is a little bit different,” she said in an interview. “The slope of the curve will be a little bit steeper, but the end result doesn’t change.”
Shares of the Atlanta-based company fell more than 13% on Tuesday, their biggest intraday drop since October 2008. The stock had fallen 7.7% this year through Monday's close.
USPS Contract
A new contract with the U.S. Postal Service could provide a boost in the second half of the year. The third and fourth quarters also see peak shipping demand (and surcharges) around the holiday season.
UPS lowered its full-year revenue forecast to $93 billion from a previous forecast of as much as $94.5 billion. The company also restarted a share buyback program aimed at raising about $1 billion annually.
The results came a day after UPS announced the acquisition of Mexican courier company Estafeta. UPS has highlighted international expansion, especially in the offshore destination of Mexico, as one of the company's top growth priorities.
(Updated with context and CEO comments)
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