UPS keeps full-year revenue target, says fuel price spike from Iran war could hurt demand

By Nandan Mandayam and Lisa Baertlein

April 28 (Reuters) - United Parcel Service UPS.N on Tuesday reiterated its full-year revenue target despite projecting a return to growth in the June quarter, as soaring fuel prices from the U.S. and Israeli war in Iran put an underlying improvement in its business at risk.

The world's largest parcel delivery firm forecast 2026 revenue of $89.7 billion, up 1.2%. Shares in UPS - viewed as an economic bellwether because its customers include retailers, factories and prescription drug makers - were down 3.6% in midday trading. Shares in rival FedEx FDX.N were unchanged.

"It is early in the year and there is a war in the Middle East. High gasoline prices could potentially impact demand towards the end of the year," CEO Carol Tome said on an earnings call.

UPS adds a fuel surcharge on packages that move on delivery vehicles, semi trucks and planes, a measure that protects its profits from price spikes.

Those surcharges will boost revenue, but costs are also higher, CFO Brian Dykes said.

"We don't see this as a windfall," Dykes said.

Some analysts questioned whether UPS will fully recoup its fuel costs.

The United States Postal Service recently implemented its first-ever fuel surcharge and it is unclear if UPS will be able to pass through or otherwise offset this impact for its Ground Saver shipments delivered by the post office, J.P. Morgan analyst Brian Ossenbeck said in a client note.

U.S. logistics firms including UPS and FedEx have seen volume decline due to changing U.S. trade policies, notably tariffs on goods from China and other key exporting countries as well as the loss of duty-free "de minimis" treatment for low-value e-commerce shipments tied to China‑linked discount sellers such as Shein and Temu PDD.O. UPS separately decided to deliver millions fewer packages for Amazon.com AMZN.O, its largest customer, as it weeds out work that weakens profits.

UPS CEO Tome said the company would return to revenue and profit growth from the second quarter due to its transition to premium, higher-paying shipments and cost cuts it undertook in recent quarters.

Over the last year, UPS has cut thousands of jobs as it ramps up automation at sorting hubs in a bid to bring down operating costs.

Atlanta-based UPS on Tuesday reported adjusted net income of $1.07 per share for the quarter ended March 31, compared with $1.49 per share a year earlier, but beat analysts' expectation of $1.02, according to data compiled by LSEG.

Quarterly revenue fell 1.6% to $21.2 billion. However, revenue per piece at its core domestic segment rose 6.5%.

Some analysts said first-quarter margins in the company's domestic segment, its top revenue contributor, missed expectations.

Jefferies said the segment's adjusted operating margin of 4% was at the lower end of its 4% to 5% expectation.

Those weaker-than-expected results mean UPS will have to work even harder to hit its profitability targets, J.P. Morgan's Ossenbeck said.

UPS on Tuesday reaffirmed its target for 2026 adjusted operating margin of 9.6%, below the double-digit level the company previously generated.