FILE PHOTO: The company logo for United Parcel Service (UPS), is displayed on a screen at the New York Stock Exchange (NYSE) in New York, U.S., October 22, 2019. REUTERS/Brendan McDermid

United Parcel Service Inc (UPS.N) shares fell as much as 6% on Wednesday as the company known for delivering everything from packages to coronavirus vaccines forecast disappointing post-pandemic U.S. margins.

UPS shares have nearly doubled over the last year – fueled by surging pandemic-related shipments of everything from food and furniture to medical masks and vaccines.

They pared losses to trade down 4.6% at $200.19 on Wednesday afternoon after falling as low as $197. That came as analysts pressed executives on how UPS will maintain momentum as demand moderates, pandemic surcharges roll off, and competitors – including its No. 1 customer, Inc (AMZN.O) – rise.

During the company’s analyst and investor day webcast on Wednesday, UPS forecast U.S. domestic adjusted operating margins of 10.5% to 12% in 2023 – below what some analysts expected. It put overall margins at 12.7% to 13.7% for the same period.

Rate hikes and increased business from SMBs will generate about half of the margin in the company’s core U.S. market, executives said.

The world’s largest parcel delivery firm is prioritizing lucrative deliveries over volume under new Chief Executive Carol Tome’s “better not bigger” strategy.

Snow falls at the United Parcel Service (UPS) WorldPort hub located at Louisville Muhammad Ali International Airport in Louisville, Kentucky, U.S., February 15, 2021. REUTERS/Bryan Woolston

Snow falls at the United Parcel Service (UPS) WorldPort hub located at Louisville Muhammad Ali International Airport in Louisville, Kentucky, U.S., February 15, 2021. REUTERS/Bryan WoolstonRead More

To that end, UPS is fighting to win more contracts with healthcare firms and small and medium-sized businesses (SMBs).

“Not all packages are attractive to us,” Tome said.

Healthcare deliveries, including temperature-monitored shipments from companies like vaccine maker Pfizer Inc (PFE.N), are among the most profitable in the business. SMBs are more attractive because clients can require a higher level of service and tend to lack the muscle of large firms like Amazon to negotiate volume discounts.

Meanwhile, the Atlanta-based firm is corralling costs on key projects, including expanding Saturday deliveries across the United States.

Executives said its weekend delivery push uses existing infrastructure. The company also is “looking” in to a same-day delivery service.

UPS forecast revenue between $98 billion and $102 billion for 2023, compared with the average analyst estimate of $100.19 billion, according to Refinitiv data. It reported full-year revenue of $84.6 billion in 2020.

Our Standards: The Thomson Reuters Trust Principles.


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