By Lisa Baertlein and Shivansh Tiwary
(Reuters) -United Parcel Service Inc on Tuesday said it would shelter 2023 profits from expected revenue declines as decades-high inflation, rising interest rates and recession fears weigh on the bellwether global transportation industry.
The world’s biggest parcel delivery firm beat Wall Street’s profit forecast for the fourth quarter after cost controls helped offset soft holiday delivery demand and disruptions from severe weather, war in Ukraine and COVID-19 outbreaks that hobbled factory output in China.
UPS shares climbed 4.2% to $184.41 in midday trading after it also raised its quarterly dividend by 6.6% and announced a new $5 billion share repurchase plan.
Looking ahead, UPS Chief Executive Carol Tomé described the outlook for economic growth in 2023 as “cloudy, at best.”
The company’s 2023 forecast calls for revenue between $97 billion and $99.4 billion and operating margin of 12.8% to 13.6%.
The revenue and operating margin forecasts are lower than UPS’s 2022 result.
UPS has plans for managing through a variety of economic scenarios. “That will help us quickly pivot in an uncertain macro environment,” Chief Financial Officer Brian Newman said.
UPS’s “2023 outlook appears to point to a resilient outcome despite the macro challenges,” BMO Capital Markets analyst Fadi Chamoun said.
UPS has done a better job of anticipating the downturn and controlling costs than rival FedEx, which was forced to retract its full-year forecast. FedEx now plans to slash $3.7 billion in costs this fiscal year.
Executives at Atlanta-based UPS are paring expenses to offset declines in Asia air shipments, freight forwarding services and U.S. home deliveries that have been its bread-and-butter during the pandemic.
This month, executives froze its defined benefit pension plan for U.S. nonunion employees and replaced it with enhanced 401(k) benefits.
Still, UPS continues to invest in its lucrative healthcare business, efforts to lower delivery costs and other projects to set it up for future growth, executives said.
Meanwhile, the industry is bracing for the July 31 expiration of the contract covering UPS’s Teamsters-represented workers. Rivals are using the prospect of a potential strike to woo business away from UPS.
Tomé said the two sides are not far apart on key issues such as weekend work. And, she said, UPS is already revamping safety systems to keep workers safe when temperatures soar.
“I’m committed to delivering … a win-win-win contract before the end of July,” she said of a deal that is good for the company, employees and customers.
(Reporting by Lisa Baertlein in Los Angeles And Shivansh Tiwary in Bengaluru; Editing by Shinjini Ganguli, Paul Simao and Jonathan Oatis)