UPS CEO Carol Tomé said consumers have less disposable income and are increasingly spending it on services rather than goods.

United Parcel Service Inc. (UPS) reported profits and revenue were down for the fiscal first quarter ended March 31, 2023.

The shipping company’s $22.9 billion revenue was down 6% from the first quarter of 2022. Consolidated operating profit was down 21.8% over the same period to $2.5 billion.

Retail demand is slowing

UPS CEO Carol Tomé said contracting retail sales were partially to blame for declining profits.

Package volume was “higher than expected,” in January, in line with expectations in February, and then moved below expectations in March as “retail sales contracted and we saw a shift in consumer spending.”

Consumers have less disposable income as food prices increase, Tomé said. The disposable income they do have is increasingly going toward services rather than goods, cutting into UPS’ business. Spending on necessities like groceries tends to happen in person, chief financial officer Brian Newman added.

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Tomé warned investors ahead of earnings that the company would come in on the lower end of its previous guidance.

Expectations for the rest of 2023

Newman said he expects the rest of the year to be challenging as the “volume environment has deteriorated, especially in the U.S.” since UPS first gave financial targets. 

Revenue and margins for the year will likely be at the low end of the range, he said. UPS projects $97 billion in consolidated revenue for the full year, with an operating margin of 12.8%. 56% of profits are expected to come in the second half of the year.

2023 package volumes will be down 3% from 2022, Newman said, and growth in revenue per piece will likely offset those declines.

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UPS earnings

For the fiscal Q1 ended March 31, 2023, UPS reported:

  • Consolidated revenue was down 6% from the first quarter of 2022, to $22.9 billion from $24.4 billion.
  • Consolidated operating profit was down 21.8% over the year-ago period to $2.5 billion.
  • Total revenue per piece of mail was up 3.6% over the first quarter in 2022.
  • Average daily volume was down 5.4%.

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