UPS seen grappling with hit from cheap deliveries ahead of key holiday season
Adds analyst comment in paragraphs 4-5
By Lisa Baertlein and Ananta Agarwal
Oct 23 (Reuters) -Wall Street expects United Parcel Service UPS.N 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.
Expectations for a better-than-expected profit report are low, said Louis Navellier, founder and chief investment officer of asset manager Navellier & Associates.
"However, all will be forgiven if UPS surprises (with an earnings outperformance) and also provides upbeat guidance," Navellier said.
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 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 FDX.N discounts to attract and retain customers have intensified over the course of this year, even as the companies 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 PDD.O and Shein - a move that pummeled second-quarter profits. And, it is taking on the U.S. Postal Service contract work that depressed profits at FedEx.
Amazon AMZN.O, 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 relatively tough outlook for UPS shares," he said. UPS is unionized.
Shares in UPS were trading mostly unchanged at $130.87 late Wednesday morning, down 20% from its 52-week high of $163.82.
Reporting by Lisa Baertlein in Los Angeles and Ananta Agarwal in Bengaluru; Editing by Stephen Coates and Jonathan Oatis
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