By Lisa Baertlein and Kannaki Deka
(Reuters) -United Parcel Service Inc on Tuesday reported better-than-expected quarterly earnings but shares fell as much as 4.6% after executives said they expect e-commerce delivery growth to cool.
UPS, whose shares were down 3.5% to $182.99 in midday trading, handled fewer packages than originally anticipated in the first quarter, largely due to e-commerce declines. UPS, which counts Amazon.com (NASDAQ:AMZN) as its largest customer, now expects volume in its biggest U.S. business to fall in the first half of 2022 before improving in the latter part of the year.
"We're not going to see the kind of (e-commerce) growth that we experienced during COVID, clearly, but e-commerce sales will continue to grow," Chief Executive Officer Carol Tome said on a conference call with analysts.
Executives said higher shipping rates, fuel surcharges and more large and small business deliveries would offset softer e-commerce demand, as they did in the first quarter.
Atlanta-based UPS reiterated its 2022 outlook for revenue of about $102 billion and adjusted operating margin of roughly 13.7%. It also announced plans to double its 2022 share buyback target to $2 billion.
UPS is considered a bellwether for the economy because it handles shipments for virtually every industry. Delivery volume tends to fall when business activity falters. Another closely watched transportation sector - U.S. on-demand or "spot" trucking - is already in correction territory.
"The fear is that ... (UPS) could see revenue growth waver thanks to high inflation. We can expect parcel volumes to decrease in line with consumer spending," Patrick Donnelly, Third Bridge senior analyst, said in an email.
UPS announced its first-quarter results after the Commerce Department reported back-to-back declines in U.S. online sales for February and March. Pandemic-weary consumers shifted some spending from goods to services in response to the United States lifting some COVID prevention measures. At the same time, record gas prices cut into disposable income.
For the quarter ended March 31, average daily volume in the UPS domestic business fell 3%, or 611,000 packages per day. That included a 7.4% drop in residential deliveries versus last year, when stimulus check expenditures spurred unprecedented growth, executives said.
Still, UPS reported first-quarter adjusted earnings of $3.05 per share on revenue of $24.4 billion - helped, in part, by a 9.5% increase in domestic revenue per package. Those results topped analysts' average targets for earnings of $2.88 per share and revenue of $23.78 billion.
During the UPS earnings call, some analysts questioned whether changing market conditions would erode the company's power to raise and retain its shipping rates.
"There is still a demand and supply imbalance. We price for the service that we provide and are not seeing any pressure on the pricing environment," Tome said.