Consultant Insight: UPS posts ‘better, not bigger’ results in record Q2 earnings

Second-quarter earnings released today from UPS marked another record quarter from the integrator, as it announced total revenue up 14.5% year over year to $23.4 billion and total operating profit up 47.3% to $3.3 billion. Revenue and operating profit were up in all three divisions of U.S. Domestic Package, International Package and Supply Chain and Freight, with the most significant growth rate increases from International. [caption id="attachment_69752" align="alignright" width="375"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] International total revenue increased 30% YoY to $4.8 billion, and operating profit increased 53.6% to $1.1 billion. Export average daily volumes increased 14.0%, while International domestic average daily volumes increased 11.5%. Difficult YoY comparisons due to COVID-19 related PPE exports during Q2 2020 resulted in Asia export volumes declining by 5.8%. However, shippers’ need to replenish inventory from Asia to the U.S. remains strong for UPS. The need to replenish inventories was also evident in the company’s Supply Chain division. Led by its freight forwarding group, the division reported revenue up 30.0% and operating profits up 95.8% as shippers looked to secure international capacity at any cost and utilize alternative ports closer to customers. As a result, UPS’ ocean freight forwarding group’s profits more than doubled during the second quarter. B2B volumes rising Globally, business-to-business (B2B) volumes increased 25.0% while business-to-consumer (B2C) volumes declined 4.1%. Indeed, a similar trend was noted in the U.S. Domestic division, where B2B volumes increased 25.7%, and B2C volumes declined 15.8%. Domestically, UPS noted much of this shift was driven by retailers replenishing inventory. The B2B increase was the first YoY increase since 2019. Domestically, UPS continued to shine despite a YoY decline in average daily Ground volumes. The decline was also impacted by UPS’ hybrid last-mile delivery service, SurePost, which experienced YoY declines primarily attributed to the reopening of stores. Retailers often use SurePost as a lower-cost shipping option. However, more retailers may be passing on all or a portion of higher shipping costs to customers or raising purchase minimums for customers to receive “free shipping.” As a result, customers may opt to use curbside pickups or buy online, pick up in stores (BOPIS) instead, thus contributing to SurePost volume declines. Peak season Peak season preparations typically begin at the start of the year, and this year is no exception. UPS plans to expand Saturday deliveries to more than 90% of the U.S. population by October while also adding 2 million square feet in additional capacity and more airplanes. UPS has already announced peak season surcharges well in advance. These additional fees will go into effect in October and last through mid-January. Volume-wise, expectations are for a slight YoY decline for the third quarter and a slight increase for the fourth quarter due to difficult annual comparisons. But CEO Carol Tome expects package delivery demand during the peak season to exceed capacity by about 5 million pieces per day. Cash pile accumulating UPS also generated more free cash flow in the first six months of 2021 than any full year before. When asked what the company planned to do with the cash, there was unsurprisingly a bit of hesitation in the response. Most likely, the company will use a good bit of the cash for share buybacks and to increase quarterly dividends. In terms of any acquisition, Tome noted that the company is always looking to improve the end-to-end customer experience. By doing so, it enhances customer “stickiness.” There are several gaps within UPS’ current offering, but it’s unlikely the company will make any significant acquisition this year because of its focus on its “better, not bigger” strategy. If any investments are to be made this year, expect them to be in technology. For more on second-quarter earnings and the outlook for the second half, listen to this month’s “ On Air with Air Cargo World ” podcast, with Cathy Roberson and Editor Caryn Livingston.

Consultant Insight: UPS posts ‘better, not bigger’ results in record Q2 earnings

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