UPS revenue down 1.1% from Q2 2023

UPS today reported $21.8 billion in second-quarter consolidated revenues, a decrease of 1.1% year over year. [caption id="attachment_69712" align="alignright" width="300"] (Courtesy/UPS)[/caption] THE BIG PICTURE: Like other companies in air cargo and the supply chain , UPS is seeing improvement compared with its earnings from the past 18 months. UPS reported a 5.3% YoY decline in consolidated revenues in Q1 and a 9.3% YoY decline in 2023. BY THE NUMBERS: UPS reported a Q2 consolidated operating profit of $1.9 billion, down 30.1% YoY. The company also reported in Q2: Adjusted diluted earnings per share of $1.79, down 29.5% YoY; U.S. domestic segment revenue of $14.1 billion, down 1.9% YoY; International segment revenue of $4.4 billion, down 1% YoY; and Supply Chain Solutions revenue of $3.3 billion, up 2.6% YoY. WHAT THEY’RE SAYING: For the first time since Q4 2021, UPS recorded average daily volume (ADV) growth in the U.S. domestic segment. ADV grew 0.7% YoY in Q2 to 17.9 million parcels. Despite this modest growth, revenue was still down 1.9% YoY due to a 2.6% YoY decrease in revenue per piece, which the company attributed to changes in product mix. “Our second-quarter performance was a significant turning point for our company as we returned to volume growth in the United States [for] the first time in nine quarters,” UPS Chief Executive Carol Tome said on today’s earnings call. The international segment saw a 2.9% YoY decrease in ADV, and revenue per piece increased 2.4% YoY, driven by strong base pricing and the impact of region and product mix, according to UPS. UPS primarily attributed the Supply Chain Solutions revenue increase to growth in the logistics sector, including health care, the earnings report stated. Strong e-commerce demand in international air cargo drove increases in volume and revenue, according to the company’s earnings presentation. However, volume and revenue were down YoY in sea freight. STATE OF PLAY: UPS saw U.S. domestic customers generally opting out of air in favor of ground. “We saw customers trade down between services,” Chief Financial Officer Brian Dykes said on the call. “Specifically, we saw customers shift from air to ground and from ground to SurePost. As a result, total air average daily volume was down 7.8%, while ground average daily volume increased 2.3%. Within ground, SurePost average daily volume grew 25%.” Dykes became CFO this month following the departure of former CFO Brian Newman , who left June 1 to focus on his health. “Within international airfreight, strong e-commerce demand, particularly in China outbound, drove an increase in volume and lifted market rates as demand outpaced capacity, resulting in an increase in revenue,” Dykes said. FLASHBACK: The U.S. Postal Service announced April 1 that UPS will become its primary domestic air carrier effective Sept. 30 for a 5½-year minimum base term. FedEx held that contract for more than 20 years. “We are onboarding the new USPS air cargo business with plans to be fully implemented before peak,” Tome said. “The onboarding has gone well, and we continue to expect this business to be margin accretive for the company.” Dykes said onboarding would be completed by the end of Q3. In Q2, UPS also: Opened an 82,000-square-foot dedicated health care facility in Dublin and expanded its ultra-cold storage capabilities at its Roermond, Netherlands, facility, which now has a footprint of more than 235,000 square feet; Increased capacity in Taiwan by 30%; Expanded Supply Chain Solutions space by 25% at Frankfurt Airport (FRA); and Enhanced its RFID labeling to allow customers to print RFID labels themselves, and installed RFID readers at customer locations. UPS ranked second on Air Cargo Next ’s Freight 50 list of the top cargo carriers and UPS Supply Chain Solutions ranked seventh on Air Cargo Next ’s Power 25 list of the top freight forwarders. NOTEWORTHY: UPS announced July 22 that it will acquire Estafeta , a Mexican express delivery company. The acquisition is targeted to close by the end of this year. The value and terms of the transaction have not been disclosed. “By combining Estafeta with the end-to-end services we already have in Mexico and connecting it to the global reach of our integrated network, we will greatly enhance our logistics orchestration capabilities for customers that are shifting manufacturing and distribution closer to the United States,” Tome said. UPS announced in June that it will sell subsidiary Coyote Logistics , the truckload brokerage unit acquired in 2015, to RXO for $1 billion by yearend. “We said we would explore strategic alternatives for Coyote and we did, leading to a pending sell to RXO at considerably more than our carrying value,” Tome said. FUTURE LOOK: UPS said it expects about $93 billion in consolidated revenue for all of 2024. “We are restarting our share repurchase program with the intent of repurchasing about $1 billion of shares annually, including roughly $500 million in 2024,” Tome said. MARKET REACTION: Shares of UPS ( NYSE: UPS ) were down 12.07% from market open to $127.66 as of market close today. UPS has a market capitalization of $108.7 billion.

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