UPS profit tops expectations as cost-cuts deliver margin

(Reuters) - United Parcel Service 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 also is grappling with higher labor costs tied to its new Teamsters contract. In January said it would cut 12,000 non-union jobs as part of a bid to slash $1 billion in costs this year.

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

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

UPS reported a 3.2% decline in average daily volumes in its key U.S. 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 $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 favor for several quarters," said Chappell, who noted the company has had success with expense control.

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

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

(Reporting by Ananta Agarwal in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Devika Syamnath and Bernadette Baum)

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