UPS revenue falls 12.8% YoY in Q3

UPS today reported $21.1 billion in revenue for the third quarter of 2023, a decrease of 12.8% year over year. Company executives laid a good deal of the blame for the reduction on recent contract negotiations. [caption id="attachment_93716" align="alignright" width="300"] (Photo/UPS)[/caption] “In U.S. domestic, we knew the third quarter would be a challenge and it was due to our labor negotiations, higher costs and a dynamic economic backdrop,” UPS Chief Financial Officer Brian Newman said in today’s earnings call. “We ended the second quarter with average daily volume down 12.2%. As contract negotiations became later and louder, we saw more volume diversion than we anticipated.” UPS Teamsters ratified a five-year contract in September that includes wage increases for full-time employees and will keep union members the highest-paid delivery drivers in the nation, improving their average top rate to $49 per hour. THE BIG PICTURE: UPS’ leng thy contract negotiations proved beneficial for its competitors. UPS executives estimated at the end of Q2 that one-third of the diverted packages went to FedEx , one-third to the U.S. Postal Service and one-third to regional carriers. “In the U.S., in the third quarter, average daily volume was down 11.5% and we estimate the impact of volume diversion reduced our volume by approximately 1.5 million packages per day,” Newman said. BY THE NUMBERS: Consolidated operating profit was $1.3 billion, down 56.9% YoY. Additionally, UPS reported for Q3: Adjusted diluted earnings per share of $1.57, down 47.5% YoY; U.S. domestic package revenue of $13.7 billion, down 11.1% YoY; International package revenue of $4.3 billion, also down 11.1% YoY; Supply chain solutions revenue of $3.1 billion, down 21.4% YoY; and Average revenue per parcel of $13.81, up 1.7% YoY. WHAT THEY’RE SAYING: UPS executives attributed reduced Q3 volume to a challenging economy and parcel diversion amid contract talks. “The global macro environment remained weak with some countries in recession, which pressured international and freight forwarding volume,” UPS Chief Executive Carol Tome said in today’s earnings call. “And, in the U.S., labor uncertainty negatively impacted volume for most of the quarter. From a demand perspective, August proved to be the most challenging, and some customers waited for the ratification of our Teamster contract before returning volume to our network. “Our third-quarter performance, while down considerably from last year, was in line with our expectations,” Tome continued. “It factored in both the timing of contract ratification and higher labor costs resulting from the new labor contract.” STATE OF PLAY: Tome said the company has seen an “explosion of e-commerce demand ” and will cater to that with quicker package delivery. “We are harnessing our data to deliver more agile and targeted products that meet our customers’ needs,” Tome said. “Our latest example is a new product we call Hyperlocal, which leverages the footprint of our U.S. facilities to provide select customers with a fast, next-day delivery option within a metro area. Hyperlocal enables us to capture new, profitable B2C and B2B volume and was launched in October as a new service offering.” FLASHBACK: UPS acquired health care logistics provider Bomi Group in November 2022 and announced last month an agreement to acquire MNX Global Logistics . Tome called the acquisitions “two examples of [UPS’] bold moves in health care.” NOTEWORTHY: UPS announced Wednesday that it has entered into an agreement to acquire software and reverse logistics company Happy Returns from PayPal . “By combining Happy Returns’ easy digital experience and established drop-off points with UPS’ small-package network and footprint of close to 5,200 UPS store locations, box-free, label-free returns will soon be available at more than 12,000 convenient locations in the U.S.,” Tome said in the earnings call. The acquisition is expected to close in Q4 2023, according to the company. Terms of the acquisition were not disclosed. FUTURE LOOK: Global demand continues to slow and macroeconomic conditions remain challenging, Newman said. “As a result, we’ve lowered our full-year guidance and provided a range to reflect the uncertainty in the market,” he said. UPS expects consolidated revenue to be between $91.3 billion and $92.3 billion, and consolidated operating margin to be between 10.8% and 11.3%. In its Q2 earnings rep ort, UPS said it expected full-year 2023 consolidated revenue to be about $93 billion and to have an adjusted operating margin of around 11.8%. MARKET REACTION: Shares of UPS ( NYSE: UPS) were down 5.95% from market open to $138.19 as of market close today. UPS has a market capitalization of $118.1 billion.

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