UPS CEO Strikes New Labor Deal as Share Price Slumps
Key takeaways
- UPS has confirmed its new labor deal costs will rise by 3.3% over the next five years
- The shipping company agreed a deal with Teamsters in July after the union threatened strike action
- UPS shares fell as much as 3% at the latest labor deal update
United Parcel Service (UPS)’s share price has felt the heat since it agreed to a new labor deal with unions. Since then, UPS has been trying to sell the new deal hard to Wall Street — and it just released an update on the financial implications of the agreement.
Even though UPS is trying to look at the bright side — and the company is stuck between a rock and a hard place regarding increased labor costs — it still wasn’t enough to convince Wall Street, and the stock continued to fall. Here’s everything you need to know about UPS trying to balance keeping its workers and investors happy.
What’s happening with UPS?
In July, parcels and logistics company UPS first announced it had reached a collective bargaining agreement with the International Brotherhood of Teamsters union, staving off a likely workers’ strike.
Teamsters represent around 330,000 UPS employees in the U.S., and investors were more than concerned that UPS’ bottom line would be hit by rising costs (though it shouldn’t have been a massive surprise, given how everything’s going up in price at the moment).
On Monday evening, UPS updated investors about its contract with the Teamsters union. Its costs will rise by roughly 3.3% on average over the next five years, which is as long as the contract is for. That’s slightly less than the 5% to 6% increase first believed by Wall Street.
In a bid to alleviate investors’ concerns, UPS CFO Brian Newman said on a call, “UPS retains the flexibility to implement technology to further driver productivity”. There’s hope for Wall Street, then, that UPS can find some cost-savings elsewhere to offset the rise in labor costs.
What’s been the share price drama?
Ever since UPS first announced it had agreed to a deal in July, shares have fallen by around 15% as investors feared the worst. After the financial estimates from this week, UPS shares fell as much as 3% during Tuesday trading. The stock has now lost over 10% in value since the start of the year.
In comparison, rival FedEx is faring much better on the stock market. The share price is up nearly 43% since the beginning of 2023 at over $253. 59% of analysts have Buy ratings for FedEx, as opposed to UPS stock, which has 49%.
The bottom line
UPS doesn’t really deserve the flack it’s getting right now — with inflation running hot, it was inevitable that labor costs would increase.
Investors clearly don’t like something else about the stock — whether that’s the invisible costs of labor increases, like pensions and healthcare, or that traders still aren’t convinced the negotiated deal won’t hit UPS’ financials more than they think. Either way, UPS stock is trading at a discount right now.
