UPS seen grappling with hit from cheap deliveries ahead of key holiday season

By Lisa Baertlein and Ananta Agarwal

(Reuters) - Wall Street expects United Parcel Service (NYSE:UPS ) to report a rise in adjusted quarterly profit on Thursday, even as concern mounts over stubbornly soft demand for lucrative overnight shipping heading into the vital holiday delivery season.

Analysts, on average, expect the world's largest delivery firm to post adjusted earnings of $1.63 per share when it reports third-quarter results before the market opens on Thursday, according to Refinitiv data.

That would easily top the year-earlier quarter's adjusted profit - but may do little to allay concern about results for the fourth quarter, when package volumes typically soar.

The company's "near-term earnings could be pressured by a still weak parcel demand backdrop," Barclays analyst Brandon Oglenski said in a client note.

Indeed, rival FedEx (NYSE:FDX ) in September reported a sharp drop in quarterly adjusted profit and trimmed its full-year forecasts after its customers continued to trade down to slower, cheaper services from speedy, pricier options.

UPS and FedEx discounts to attract and retain customers have intensified over the course of this year, even as the firms unveiled surcharge increases that apply to more packages, industry pricing experts said.

The companies are on a "hunt for revenue," said Mingshu Bates, chief analytics officer at consultancy AFS Logistics.

Meanwhile, UPS is filling up its network with low-margin deliveries for China-linked bargain retailers Temu and Shein - a move that pummeled second-quarter profits. And, it is taking on the United States Postal Service contract work that depressed profits at FedEx.



Amazon (NASDAQ:AMZN ), which accounts for about 12% of UPS business, remains a threat because it is delivering more of its own packages, Barclays analyst Oglenski said.

"Long-term pressures from Amazon, non-union FedEx competition and limited dividend growth paint a relative tough outlook for UPS shares," he said.

Source: Investing.com