UPS shares dip after executives outline costs of new labor contract

Investing.com -- Shares in United Parcel Service (NYSE:UPS) were lower in early U.S. trading on Tuesday after the company said a new deal with its Teamsters-represented workers will increase wage and benefit costs at a 3.3% compound annual growth rate over the five-year life of the agreement.

In a recorded message to investors after the bell on Monday, Chief Financial Officer Brian Newman noted that 46% of these expenses will be incurred in the first year of the deal, adding that costs related to the contract are expected to be about $500 million higher than Atlanta-based UPS initially anticipated.

Newman's comments tempered estimates for UPS's third-quarter performance, with analysts at Evercore ISI in particular slashing their earnings per share projections for the three-month period to $1.67 from $2.23.

"[He] was very clear that current [third-quarter] expectations are FAR too high," the Evercore analysts said.

Speaking to CNBC, Chief Executive Carol Tome said the total cost of the agreement will be less than the "$30B in new money" outlined by the Teamsters union, which is representing about 340,000 UPS workers in the U.S. However, Tome did not reveal to the channel the firm's exact internal estimates.

UPS previously slashed its annual revenue and profit guidance last month due to elevated labor costs and business lost during the fraught negotiations with Teamsters. In August, UPS and the union ratified a new contract, averting a possible strike that could have had wide-spread implications. According to an estimate from Anderson Economic Group, it would have been the costliest labor action "in a century," shaving billions of dollars off of the American economy.

The deal also marked a fresh victory for unions over the summer, as workers from aviation to entertainment pushed for new contracts.