UPS (UPS) stock fell on Tuesday morning as the shipping company said softening consumer demand hurt its quarterly sales and 2023 outlook.

The delivery service reported first-quarter revenue of $22.9 billion, down 6% from the same period last year. UPS’ $2.20 adjusted earnings per share was down 27.9%.

"In the US, relative to our base plan, volume was higher than we expected in January, close to our plan in February, and then moved significantly lower than our plan in March as retail sales contracted and we saw a shift in consumer spending," said Carol Tomé, UPS chief executive officer, on the company's earnings call.

She added that "US discretionary sales are lagging grocery and consumable sales, and disposable income is shifting away from goods to services."

UPS isn’t projecting that things will get better, either. It sees full-year revenue of roughly $97 billion with an operating margin of roughly 12.8%. Those numbers are at the low end of 2023 guidance ranges provided by the company at the end of January.

UPS shares fell 6.8% at the market open, marking their largest drop to open a trading session since July 2021. The stock was down more than 9% in mid-morning trading.

Signs of recession?

As management pointed out, the UPS sales decline follows the broader trend of retail sales in the US, which dropped on a monthly basis in both February and March. The most recent print saw retail sales decline 1% in March. Economists had only expected a 0.5% decline, according to Bloomberg consensus data.

In March, FedEx (FDX) reported earnings for the quarter ended on February 28 (a month earlier than UPS). FedEx also saw earnings per share drop double digits from the same period a year prior and revenues decline by low-double-digit percentages across all segments.

E-commerce giant Amazon (AMZN) will provide more visibility on the health of consumer spending when the company reports first-quarter results Thursday. Wall Street expects Amazon’s online store revenue to decrease 1% from the prior.

Investors have been closely watching for signs that the US economy could spiral into a recession as the Federal Reserve raises interest rates to combat inflation. Softening consumer spending is driving concerns that a recession is ahead.

Thursday's preliminary reading of first-quarter gross domestic product report is expected to give Wall Street another look at the health of the economy. Economists anticipate 2% growth, though Oxford Economics notes much of that growth came in the January.

“Early signs are that tighter bank lending standards are beginning to bite, but the full hit to activity won't be evident until later this year,” Oxford Economics lead US economist Michael Pearce wrote in a note last week.

UPS executives called out a deteriorating macro environment outside the US, too.

UPS' domestic segment held up the strongest, with volume dropping 5.4%. In a sign that stubborn inflation continues to hit package prices, a 4.8% increase in revenue per piece helped offset the decline in packages shipped.

Internationally, revenue and daily volume fell more than 6%, which UPS attributed to softness in China. Supply chain solutions saw the biggest drop for UPS in the first quarter, with revenue declining 22.5%.

"Outside of the US, export activity out of Asia remained weak, which negatively impacted revenue in both international and supply chain solutions," Tomé said. "In response, we focused on controlling what we could control. We remained disciplined on price."

Josh is a reporter for Yahoo Finance.

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