UPS is cutting 12,000 jobs as shipping volume – and thus, company revenue – both internationally and domestically dropped in its fourth-quarter earnings report.
The company said the mass layoff is part of a broader effort to "align resources" in 2024. This effort includes mandating staff work from offices, five days a week starting on March 4.
UPS also reported a 7.4 percent drop in average daily volume domestically and an 8.3 percent drop internationally. CEO Carol Tome said in a company earnings call discussing the fourth-quarter earnings report that the international softness was "heavily weighted" in Europe, and other factors like freight complications in the Red Sea as well as in the Panama and Suez canals also played a part.
"Last year was a unique, and quite candidly, difficult and disappointing year," said Tome. "We experienced declines in volume, revenue and operating profits in all three of our business segments."
The fourth-quarter earnings report noted that company revenue was $24.92 billion, around half a billion short of the $25.43 billion predicted by Wall Street. This represents a 7.8 percent decline in revenue from $27 billion during the fourth quarter of 2022. For the last three months of 2023, UPS reported a net income of $1.61 billion, or $1.87 per share, compared with the $3.45 billion and $3.96 per share the company earned during the same period in 2022.
UPS has also softened its outlook for 2024, and the company now expects revenue for the year to range from $92 billion to $94.5 billion, with an adjusted operating margin of about 10 to 10.6 percent. The company's predicted 2024 revenue is below Wall Street's forecast of around $95.6 billion. For comparison, company revenue in 2023 was $91 billion, which was a 9.3 percent drop from 2022.
Shares in UPS on Wall Street fell by more than eight percent on Tuesday, Jan. 30, following the announcement. Shares in UPS are down by about 18 percent over the past 12 months, compared with a 23 percent gain in the S&P 500.
Among its cost-cutting measures, the company is also exploring "strategic alternatives" like the sale of Coyote, a truckload brokerage business, which made up 39 percent of the revenue decline in the company's supply chain solutions business in 2023.
Costly contract with Teamsters union weighing heavily on decision to cut 12,000 jobs
The job cuts come just half a year after UPS concluded contract negotiations with its workforce unionized under the International Brotherhood of Teamsters.
Though the company's earnings report did not directly mention the financial impacts from the fear of a strike and the subsequent expensive union contract forced upon the company by the Teamsters, Tome did note that the protracted negotiations, coupled with the disappointing macroeconomic environment, contributed to the "disappointing" year.
The company reached an agreement with the Teamsters in July, saving UPS from having to deal with around 340,000 of its employees striking. It also prevented massive economic chaos that was expected by stranding more than a quarter of all parcels in the United States. Among other agreements, the deal resulted in a 12.1 percent increase in wages for union-represented workers.
Following the deal, the company repeatedly slashed its financial guidance over the subsequent months and claimed that the deal was weighing heavily on company revenue and profit margins.
The job cuts will primarily target management staff worldwide as well as contract workers. These jobs are unlikely to return even when business picks up, with Tome pointing to new technologies including artificial intelligence making this possible. The company has around 85,000 management employees and nearly all of these workers are not unionized. Tome claims the reduction in the workforce will save the company approximately $1 billion in costs.
Unionized package handling and transportation workers, who account for the bulk of UPS's nearly 500,000 employees, are not affected by this round of job cuts. Since the end of union talks last summer, UPS has only recovered nearly 60 percent of the shipping volume it lost when customers, nervous over the possibility of lost packages during a strike, shifted to UPS's competitors. Tome is trying to win back the rest of the lost volume without lowering prices, which would only hurt margins, thus the job cuts and the sale of Coyote.
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