United Parcel Service Inc.’s package deliveries declined more than expected during the second quarter, driving the shares down even as higher prices helped boost sales and profit. 

Average daily package volume fell 4 per cent in the US and more than 13 per cent for its international business, UPS said in a statement on Tuesday, as buying patterns shift back toward spending on services and as consumers tighten their belts amid a worldwide surge of inflation. UPS shares, which had slipped 12 per cent this year through Monday’s close, fell 3.8 per cent to US$180.84 at 9:55 a.m. in New York.

Chief Executive Officer Carol Tome’s strategy has been to break from UPS its tendency to chase volume at any cost. Since she took over in June 2020, the courier has been focused on more profitable customers, such as health care and small businesses. The courier’s margins have been helped by higher prices and limits on discounts traditionally given to large-volume customers. 

“We expected volume levels to decline from last year. They did, but more than we planned,” Tome said in a conference call with analysts. “Despite the decline in volume, we continue to win in the most attractive parts of the market.”

After struggling to keep up with surging demand during the height of the pandemic, UPS is now adjusting to a slowdown of package deliveries. People are now spending less on goods delivered to their homes and more toward services, such as going to concerts and eating out. Giant retailer Walmart Inc. reflected a change in consumer behavior Monday by cutting its profit outlook, saying shoppers are focusing on lower-margin essentials. 

Amazon.com Inc. is one of the large customers for which the courier is throttling package volume. Revenue and volume from the e-commerce giant, UPS’s largest customer, is declining and will be less than 11 per cent of total revenue by the end of this year. Amazon accounted for 11.7 per cent of UPS’s total revenue in 2021 and 13.3 per cent in 2020. 

 
BEATING ESTIMATES

Adjusted earnings were US$3.29 a share in the second quarter, up from US$3.06 a year earlier, Atlanta-based UPS said. Analysts had predicted US$3.15 a share. Sales were US$24.8 billion, just a bit ahead of the average estimate of US$24.6 billion. 

The courier’s adjusted operating profit margin was 14.4 per cent, up from with 14 per cent a year earlier. Margins were driven by increased revenue per package, spurred by both price increases and a shift to higher value packages. Revenue per package jumped almost 12 per cent in the US and surged almost 15 per cent for the international business. 

UPS reiterated its 2022 financial targets for an adjusted operating margin of 13.7 per cent and revenue of about US$102 billion. The company raised its goal for share repurchases this year to US$3 billion from US$2 billion in April.

“Increasing its share buyback by 50 per cent to US$3 billion provides us with some confidence about the sustainability of some of these initiatives and long-term profitability of the company through the economic cycle,” said Lee Klaskow, an analyst for Bloomberg Intelligence.

Earlier this month the International Monetary Fund cut its growth projections for the US economy this year to 2.3 per cent from 2.9 per cent, warning that a surge in inflation poses risks to both the country and the global economy. Government data due this week could show the US economy contracted for a second straight quarter, stoking the debate a possible recession.