UPS inventory drops as weak consumer demand affects volumes

UPS (UPS) stock fell on Tuesday morning as the shipping company said slumping consumer demand hurt its quarterly sales and 2023 outlook.

The delivery service reported first-quarter revenue of $22.9 billion, down 6% from the same period last year. Adjusted earnings per share of $2.20 decreased 27.9%.

“In the US, relative to our baseline plan, volume was higher than we expected in January, close to our plan in February, and then moved well below our plan in March as retail sales contracted and we saw a shift in consumer spending,” said Carol Twomey, CEO. UPS, on the company’s earnings call.

“Discretionary sales in the US lag behind sales of groceries and consumables, and disposable income is shifting from goods to services,” she added.

UPS doesn’t expect things to improve either. Full-year revenue is estimated at approximately $97 billion with an operating margin of approximately 12.8%. Those numbers are at the lower end of the indicative ranges for 2023 that the company provided at the end of January.

UPS shares fell 6.8% when the market opened, marking its biggest drop to open a trading session since July 2021. The stock fell more than 9% in mid-morning trading.

Signs of a recession?

As noted by management, the decline in UPS sales follows the broader trend of retail sales in the United States, which were down month-over-month in both February and March. The latest retail sales data saw a 1% decline in March. Economists had expected a decline of just 0.5%, according to Bloomberg consensus data.

In March, FedEx (FDX) reported quarterly earnings that ended February 28 (a month ahead of UPS). FedEx also saw earnings per share decline by double digits year-over-year and revenue declines at low double-digit rates across all segments.

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E-commerce giant Amazon (AMZN) will provide more clarity on the health of consumer spending when the company reports first-quarter results Thursday. Wall Street expects Amazon online store revenue to decline 1% from the previous.

Investors have been watching closely for signs that the US economy may turn into recession as the Federal Reserve raises interest rates to combat inflation. Weak consumer spending is raising fears of a future recession.

United Parcel Service (UPS) vehicles at a facility in Brooklyn, New York City, US, May 9, 2022. REUTERS/Andrew Kelly

Thursday’s preliminary reading of the first-quarter GDP report is expected to give Wall Street another look at the health of the economy. Economists expect growth of 2%, although Oxford Economics notes that much of that growth came in January.

“Early indications suggest that tougher bank lending standards are beginning to bear fruit, but the full impact of the activity will not be evident until later this year,” Michael Pearce, chief US economist at Oxford Economics, wrote in a note last week.

UPS executives have called for a deteriorating macro environment outside the United States as well.

UPS’s domestic segment was the strongest, with volume down 5.4%. In a sign that stubborn inflation continues to hit package prices, a 4.8% increase in revenue per piece helped offset the decline in packages shipped.

Internationally, revenue and daily volume fell more than 6%, which UPS attributed to market softness in China. Supply Chain Solutions saw the largest decline for UPS in the first quarter, with revenue down 22.5%.

“Outside the US, export activity from Asia remained subdued, which negatively impacted revenues in both International Solutions and Supply Chain,” said Tomei. “In response, we focused on controlling what we could control. We remained disciplined on price.”

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Josh is Yahoo Finance Correspondent.

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