UPS Trims Its Outlook After Steep Decline in 3Q Profit as Labor and Fuel Costs Rise

United Parcel Service (UPS) on Thursday reported steep declines in revenue and profit for the third quarter, as demand for the company's services declined amid economic and labor-related challenges. The company also trimmed its guidance for the full year, sending shares lower in early trading.

The package delivery company's revenue fell 13% year-over-year to $21.1 billion, which fell short of analysts' expectations. Adjusted earnings per share came in higher than the consensus view at $1.57, but represented a 48% decline from a year ago.

Chief Executive Officer Carol Tomé said in a press release that "unfavorable macro-economic conditions negatively affected global demand in the quarter." She also pointed to traffic that was diverted to other carriers while UPS was in negotiations over the summer on a new labor contract with Teamsters-represented workers.

Tomé said that lost traffic has started to return to the UPS network since the contract dispute was settled. However, the company cut its full-year revenue target to between $91.3 billion and $92.3 billion, and sliced its adjusted operating margin projection to 10.8% to 11.3%, citing the global economic uncertainty. In July, UPS had said it expected full-year revenue of $93 billion and an operating margin of 11.8%.

The shipping giant drew widespread attention over the summer amid tense negotiations over the new labor contract. Shipping volumes were expected to decrease during this period as the threat of a strike and service disruptions loomed. A new 5-year contract ending in 2028 should cost UPS less than $30 billion, the figure anticipated by the union. However, nearly half of the wage and benefits costs associated with the contract will be booked this year, meaning that earnings could be heavily impacted in the short-term.

Higher costs for labor and fuel also drove up expenses in the third quarter, cutting into the company's profits. Labor costs rose even before the prior union contract expired, and the price of oil increased by about a third between June and late September.

UPS shares were down over 5% as of 10:30 a.m. ET Thursday, trading at their lowest level since July 2020. They have lost more than 20% of their value year-to-date.