UPS to cut 12,000 jobs, bring workers back to office

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Sales and outlook miss expectations on lower demand and higher labour costs

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United Parcel Service Inc. plans to cut 12,000 management jobs and explore the sale of its Coyote truck brokerage business in moves chief executive Carol Tomé is taking to offset soft demand and higher union labour costs.

The jobs reductions at UPS, about 14 per cent of 85,000 full- and part-time managers, will save US$1 billion this year and more in subsequent years, Tomé said on an earnings conference call with analysts on Tuesday. She also said the company planned to ask workers to return to office five days a week in 2024.

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“We are going to fit our organization to our strategy and align our resources against what’s wildly important,” Tomé said on the earnings call. She said that even after shipping volumes grow, those jobs will not come back, as “it’s a change in the way we work.”

UPS shares fell 8.3 per cent at 9:56 a.m. in New York.

After registering a 9.3 per cent drop in annual sales, UPS forecast a 2024 upswing of as little as 1.1 per cent. Soft demand in Europe and the United States led to an overall decline of 7.5 per cent in fourth-quarter delivery volumes.

Higher labour costs and lower package demand resulted in fourth-quarter sales and 2024 guidance that missed analysts’ expectations. UPS is seeking alternative strategies for its truck brokerage business, which has seen sales plummet amid a freight recession marked by declining rates and over capacity.

Tomé said that UPS has won back nearly 60 per cent of its shipping volume lost during contentious union talks last summer. Shipping demand has also flagged as people did more holiday shopping in stores post-pandemic and inflation crimped buying power.

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Shipping for Amazon.com Inc. represented 11.8 per cent of last year’s revenue, up from 11.3 per cent in 2022, reversing a trend of UPS reducing its dependence on its largest customer, which often negotiates discounts. Amazon’s increase as a percentage of sales was driven by a steeper reduction of other large customers and the company is still looking at a “glide down” of Amazon revenue, said chief financial officer Brian Newman on the call. UPS has been focusing on small businesses and health-care customers that have higher margins.

Tomé has previously warned that the new labour deal for UPS’s 340,000 union members would hurt the company’s profit in the first half because a good part of the wage increases come through in the first year. She said Tuesday that UPS is focused on boosting efficiency and shifting to higher-profit deliveries such as medical supplies.

Soft Demand

Sales for 2024 are expected to be between US$92 billion and US$94.5 billion, UPS said. That’s lower than the US$95.7 billion midpoint of estimates from 30 analysts surveyed by Bloomberg News. The combined effects of the labour deal, which took effect Aug. 1, and the sales outlook will squeeze profit — UPS predicts adjusted operating margin will be 10 per cent to 10.6 per cent for the year, below 2023’s 10.9 per cent and analysts’ views of 11.3 per cent for 2024.

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UPS has reduced flights as air freight faced slack demand, especially from Europe, and excess capacity as airlines built out international schedules. It’s unclear whether recent shipping disruptions in the Suez Canal because of Houthi rebel attacks and a drought that’s restricting ship movements through the Panama canal will shift more business to air cargo.

Tomé plans to lay out long-term goals in an investor meeting in March.

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Adjusted fourth-quarter earnings were US$2.47 a share, down 32 per cent from a year earlier, the Atlanta-based courier said in a statement. Analysts had expected US$2.44. Sales were US$24.9 billion, while analysts had predicted US$25.4 billion. For 2023, revenue was US$91 billion.

“Collectively, results were a bit better while guidance was worse,” Christian Wetherbee, an analyst with Citigroup, wrote in a note. He said he expects demand to remain soft in the first quarter.

UPS’s board approved an increase to the quarterly dividend to US$1.63 per share. Capital spending is forecast at US$4.5 billion.

With assistance from Richard Clough.

Bloomberg.com

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