LOS ANGELES/BENGALURU (April 23): United Parcel Service (UPS) reported better-than-expected quarterly profit on Tuesday, as cost cuts offset still-soft demand for package delivery.

The world's biggest parcel delivery firm is also grappling with higher labour costs tied to its new Teamsters contract. In January, UPS said it would cut 12,000 non-union jobs, as part of a bid to slash US$1 billion in costs this year.

First-quarter adjusted profit slumped to US$1.43 per share, down 35% from last year but above analysts' estimates for US$1.29, according to LSEG data.

Revenue was US$21.7 billion, missing analysts' target of US$21.9 billion.

UPS reported a 3.2% decline in average daily volumes in its key US business and a 5.8% drop in its international segment, but said volumes "showed improvement through the quarter".

Revenue in both businesses "fell short of expectations," Jonathan Chappell, equity analyst at Evercore ISI, wrote in a client note.

To offset lower volumes, UPS is focusing on higher-margin deliveries for small businesses and healthcare companies. In particular, it plans to double its healthcare-related revenue to US$20 billion by 2026.

It reported an adjusted operating margin of 8% for the quarter, down from about 11.1% last year. The company earlier said this quarter's margin would be its lowest in 2024, with business conditions improving in the second half.

"UPS has been out of favour for several quarters," said Chappell, who noted that the company has had success with expense control.

Meanwhile, UPS won a significant contract with the US Postal Service, replacing rival FedEx as the agency's largest air cargo service provider. That business was worth more than US$1.7 billion to FedEx in fiscal 2023.

UPS shares were virtually unchanged at US$144.75 in premarket trading.

  - Reuters