UPS to cut 12,000 jobs, may sell Coyote brokerage unit
UPS Inc. said Tuesday that it will explore strategic alternatives for its struggling truckload brokerage business, Coyote Logistics, including a possible sale. In addition, UPS said it will cut 12,000 full- and part-time management and contract jobs this year as part of a new initiative called “Fit to Serve.”
UPS paid $1.8 billion for Chicago-based Coyote in 2015 as part of what CEO Carol Tomé, who was on UPS’ (NYSE: UPS) board at the time, said was a strategy to expand the Atlanta-based giant’s portfolio. However, UPS didn’t “fully understand” the heavily cyclical nature of Coyote’s business, which has manifested over the past eight years, Tomé told analysts Tuesday morning.
Coyote was generating about $2 billion in annual revenue when it was acquired, Tomé said. During the pandemic, revenue swelled to nearly double that. Since then, revenue has dropped considerably, she said, without providing details.
Like all freight brokers, Coyote has experienced top- and bottom-line difficulties as demand has slowed and rates collapsed. It has gone through multiple rounds of layoffs since the start of 2023, the latest coming in mid-January 2024.
Transportation is a notoriously cyclical business, but Coyote apparently has become too volatile on the top and bottom lines for management’s liking. Tuesday’s disclosure harkens back to the sale three years ago of UPS Freight, its former less-than-truckload business, which was also cyclical and didn’t fit with the UPS network as Tomé envisioned it. Canadian firm TFI International Inc. acquired the unit for $800 million and rebranded it as T-Force Freight.
The projected layoffs, which will affect less than 3% of UPS’ workforce of about 495,000, is expected to save the company about $1 billion in 2024, executives said. About 75% of the layoffs are expected to occur in the first half of the year, executives said. The reductions will not impact unionized employees.
The jobs will not return even as volumes recover, UPS said, adding that the reductions are part of what the company said would be a new way of working.
The first half is expected to be challenging, with the current quarter the tougher of the two, UPS said. The company will be navigating through difficult comparisons with the first quarter of 2023, and will also have to manage through a continued weak macro environment and higher labor costs from last year’s Teamsters union contract.
UPS expects revenue and margins to stabilize throughout 2024 as labor costs abate and U.S. and international demand improves. Still, UPS does not expect dramatic year-over-year gains in revenue and projects a decline in operating margins. UPS forecasts 2024 revenue of $92 billion to $94.5 billion, up from $91 billion in 2023. Adjusted operating margins are expected to come in between 10% and 10.6%, down from 10.9% in 2023.
The year just past was “difficult and disappointing,” in Tomé’s words. Revenue dropped 9.3%, and adjusted operating profit fell 28.7%. In the fourth quarter, revenue fell to $24.9 billion from $27 billion. Revenues and operating profits were down across all three units.
On a positive note for the company, its fourth-quarter results were an improvement over the low-water mark in the third quarter. For example, average daily volume in the U.S. jumped sequentially by 30% as the company won back volumes diverted to rivals during contract negotiations, captured new business and benefited from the seasonal holiday delivery peak.
UPS said it has recovered about 60% of all diverted volumes, much of that from shippers that sourced delivery services from multiple carriers, including UPS.
Shares of UPS were down more than 8% in the first 90 minutes of trading Tuesday.
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