United Parcel Service’s fourth-quarter earnings, due Tuesday morning, will tell investors a lot about how the economy looks heading into a new year.
For the quarter, Wall Street is looking for UPS to report an operating profit of $2.8 billion and earnings per share of $2.44 from sales of $25.4 billion, according to Bloomberg.
A year ago, UPS reported an operating profit of $3.2 billion and EPS of $3.62 from sales of $27 billion.
Weaker volumes from a slowing economy are partly responsible. Labor negotiations also are to blame — some businesses left the UPS network to avoid being caught in a potential work stoppage.
While UPS managed to avoid a strike with the Teamsters union, the new labor deal created another issue. Workers received big wage increases to help offset high inflation in recent years.
It is hard for UPS to raise prices all at once to offset labor cost pressures. The company plans to increase prices over time, which will help restore margins to older, higher levels.
UPS generated an operating profit margin of almost 14% in 2022. Margins are expected to come in just below 11% in 2023. Wall Street projects margins will improve by roughly 0.5 percentage points a year on average for the coming three years, moving back to about 12.5% by 2026.
For 2024, Wall Street is looking for an 2024 operating profit margin of about 11.3% and an operating profit of $10.7 billion from sales of $95.7 billion.
At the start of 2023, UPS guided to an operating profit of about $13 billion from sales of $98 billion. By October, guidance had slipped to about $10.1 billion and $92 billion, respectively, amid those economic and labor cost headwinds.
The company hosts a conference call at 8:30 a.m. Eastern time to discuss results.
Options markets imply the stock will move about 5%, up or down, following earnings. Shares have moved roughly 5% up or down after the past four quarterly reports. Shares have risen once and fallen three times over that span.
Coming into Tuesday trading, UPS stock is down about 11% over the past 12 months, while the S&P 500 and Nasdaq Composite are up about 23% and 37%, respectively.
Write to Al Root at allen.root@dowjones.com