What happened
United Parcel Service (UPS 0.14%) beat earnings estimates for the second quarter but lowered full-year guidance. Investors were unimpressed, sending UPS shares down as much as 3% on Tuesday morning.
So what
UPS delivered for investors in the second quarter, reporting adjusted earnings of $2.54 per share compared to analyst expectations for $2.50. But revenue, at $22.1 billion, was about $1 billion short of expectations, with volumes below the consensus for both domestic and international shipping.
Next-day air, UPS's premium offering, saw volumes fall by 22.4% year over year.
The company spent much of the quarter trying to avoid what would have been a costly strike by its Teamsters. CEO Carol Tomé said she was pleased to have reached an agreement, and that the company is on firm footing.
Now what
Alas, the strike talk did impact volumes, and the settlement will add to costs, with company drivers expected to earn as much as $170,000 per year, with benefits, by the end of the new contract. UPS lowered its full-year revenue guidance to $93 billion, from $97 billion, and lowered its expected operating margin to 11.8%, from 12.8%.
Analysts had been expecting $96.7 billion in sales at an operating margin of 12.5%.
The outlook would be far worse if UPS had failed to reach an agreement with the Teamsters, and the company hopes to be able to make up for the higher costs via pricing improvements in years to come. Revenue per piece was up 3.3% year over year on the domestic side.
But the transportation and logistics sector is crowded, and lingering concerns about the health of the economy could lead to questions about how much pricing power UPS will have in the quarters to come. On Tuesday, investors are understandably taking a wait-and-see approach to the shares.
