It’s a great day for
United Parcel Service
and its employees. The results of the members’ vote on the company’s new five-year labor agreement with the truck drivers’ union have emerged.
More than 86% of the members voted Yes. It’s good news for many companies, not just UPS (stock symbol: UPS).
“Our members have just ratified the most profitable agreement Teamsters have ever negotiated at UPS. This contract will improve the lives of hundreds of thousands of workers,” Teamsters General President Sean O’Brien said in a press release. They raised the level of wages, benefits and working conditions in the parcel delivery industry.”
UPS and Teamsters Agreed They reached a new labor agreement in July, but that was only a first step. The union leadership basically recommends that the members ratify the deal when they are negotiating a new agreement, but it is ultimately the union membership that decides. Nor can investors assume that ratification is inevitable. This season of labor talks was different.
There was little chance of a “no” vote. workers in
Air Spirit Systems
(SPR) voted down the contract in June. The offer was amended and the union membership ratified the new contract a few days later.
The UPS deal was rejected because inflation made it difficult for all workers to know if they were getting ahead. Consumer price inflation averaged about 2.1% annually in the two years prior to labor negotiations in 2018. It averaged about 6.6% annually in the two years prior to this year.
UPS stock closed down 1% in Tuesday’s trading, while UPS stock closed down 1% in Tuesday’s trading.
Standard & Poor’s 500
Dow Jones Industrial Average
They fell 0.3% and 0.5%, respectively. UPS stock rose 0.2% in after-hours trading, shortly after the Teamsters update.
Certification removes a small burden, which reduces the chance of employment-related equity volatility. This is positive for stocks. The biggest issue that investors will now grapple with is higher costs. The deal voted on by the Teamsters involved pay increases averaging 5% to 6% annually.
“We were considering about 4% for the first year (for the contract) and 3% going forward,” Evercore ISI analyst Jonathan Chappelle wrote in a report after the deal. “There is therefore a possibility that cost inflation per package will exceed our estimates by several hundred basis points over our forecast horizon. There may be a production offset to these numbers.
Higher costs have weighed on stocks. UPS stock has fallen about 11% since the deal was announced last month. the
Standard & Poor’s 500
It is off about 3% over the same period.
Stock (FDX) is stable.
However, it is difficult to calculate costs from headlines. “It’s been reported that UPS drivers will earn $170,000 a year, but that’s misleading,” said Helen Baker, an analyst with TD Cowen. “The base salary is about $85,000 or so, and then the benefits make up the rest.”
Both analysts still rate UPS at Hold. Baker’s price target is $190 per share. Chappelle’s share price is $185, while the share price was $167.67 in the early afternoon Tuesday.
Overall, 47% of analysts who cover the company rate the stock a Buy. The average Buy rating for stocks in the S&P 500 is about 55%. The average analyst price target is about $192 per share.
Cost concerns may be one reason why UPS has a relatively low Buy rating. Slowing economy and more competition from
(AMZN) is also playing a role. Amazon has restarted a third-party logistics service that will, to some extent, compete with FedEx and UPS.
A year ago, 50% of analysts covering UPS stock rated the stock as a Buy and the average analyst price target was about $211 per share.
The Teamsters vote mattered to more than just UPS investors.
(STLA) negotiates with the United Auto Workers. What the truck drivers did could affect negotiators on both sides. This shows, to some extent, that union members are willing to endorse pay increases in the range of 5% to 6%.
Car negotiations will unfold over the coming weeks; The contract expires in mid-September.
Write to Al Root at firstname.lastname@example.org