UPS deal with union deemed expensive by analysts

Yesterday, UPS (NYSE: UPS) and the International Brotherhood of Teamsters, the union representing around 330,000 UPS employees in the U.S., reached a tentative five-year collective bargaining agreement for U.S. Teamsters-represented employees in small-package roles, preventing a strike just before the current contracts were set to expire on July 31.

Several Wall Street analysts reacted to the news. According to UBS, the agreement, with a ~6.6% step up in full-time driver wages and larger increases in part-time worker pay which will step up ~25% from the current starting pay of $16.65/hour to $21/hour, appears to be expensive. The firm estimates that first-year cost could approach $2 billion but UPS may have offsets.

UBS noted that after the sharp year 1 step up, the pace of inflation is much more normal on the order of ~3% per year. The firm reiterated its Buy rating and $198 price target on the stock.

BofA Securities, which maintained a Neutral rating and $195 price target on UPS, said that the contract looks to add wage costs above their target (approximately $1B above target, or $1/share, ~5% average EPS impact).

The bank lowered its 2023, 2024, and 2025 EPS estimates by 3%, 6%, and 5%, to $10.35, $11.50, and $12.65, from $10.65, $12.20, and $13.30, respectively.

Bernstein, which maintained its Outperform rating and $206 price target on UPS, noted that the top rate is a little higher than they had projected.

By Davit Kirakosyan

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