Logistics giant United Parcel Service (UPS) announced Tuesday it would axe about 12,000 jobs globally and briefly explore strategic options for its Coyote business after reporting quarterly revenues that disappointed analysts.
In a conference call, CEO Carol Tome said the company sought to "align" its resources with UPS's priorities, adding that the cuts would save around $1 billion in costs this year.
Three-quarters of the reductions are set to come in the first half, Tome noted. UPS has around 500,000 employees.
Shares of Atlanta-based UPS tumbled 8% to $145.32 on the New York Stock Exchange (NYSE) amid weak demand from its retail, manufacturing and high-tech customers.
Tome also said UPS hopes to find a new way to offer Coyote's "very low-margin" services without the overhead. Coyote's revenue topped $4 billion during the height of the COVID-19 pandemic shipping boom, but "it's come way down since then," she said.
UPS, seen as a bellwether for the global economy, does not expect business conditions to improve until the second half of 2024. On Tuesday, it forecasted a full-year revenue of $92 billion to $94.5 billion, below analysts' average target of $95.57 billion, according to LSEG data.
UPS, FedEx and other delivery firms boomed in the early days of the pandemic, when home-bound consumers binged on everything from furniture and exercise equipment to sweat pants and televisions.
That trend reversed when travel, concerts and indoor dining resumed, and the resulting drop was exacerbated by inflationary pressures that crimped some e-commerce purchasing.
Both UPS and FedEx have been forced to cut forecasts in the still-uncertain business environment.
The 2024 revenue estimate from UPS is likely conservative enough that the company will "not have to come back and do this again next quarter," said Arthur Hogan, chief market strategist at B. Riley Wealth, referring to the forecast reductions.
Higher labor costs from the new contract with its Teamsters union are also squeezing profits at UPS, which expects to report its lowest consolidated operating margin of the year in the first quarter, UPS Chief Financial Officer Brian Newman said on the call with analysts.
UPS said it has been winning back business that went to rivals like FedEx during the company's tumultuous labor talks that wrapped up last summer. Some 60% of that business has returned, Tome said.
The chief executive also said that the layoffs mark a change in the way that the company works, in that these jobs are not expected to come back even if business volume rises again.
The announcement came shortly after UPS reported that its quarterly revenues were $24.9 billion for the fourth quarter of 2023, 7.8% below the same period in 2022.
This was markedly less than the $25.4 billion figure that analysts expected.
UPS reported a revenue fall of 9.3% to $91 billion for the entire year.
The company, however, expects its average daily volume to pick up in the latter half of this year, but even then, growth will be constrained.
"The small package market in the U.S., excluding Amazon, is expected to grow by less than 1%," Tome said. Amazon accounted for 11.8% of UPS revenue last year.
Meanwhile, customers are shifting to less lucrative ground-based delivery from more profitable air-based services – dinging profits at both UPS and FedEx.
For the fourth quarter, UPS reported a 6.9% decline in revenue from its air-based international segment due to significant softness in Europe and a 7.3% decline in its truck-based U.S. business.
"2023 was a unique and difficult year, and through it all, we remained focused on controlling what we could control, stayed on strategy and strengthened our foundation for future growth," Tome said in a statement.
In particular, the company noted drops in average daily volumes in its domestic and international business segments, bogging down its revenues.
Adjusted profit fell 31.8% to $2.47 per share but was still a penny better than analysts' estimate.