UPS to cut 12K positions after poor earnings

UPS will terminate 12,000 positions in the next several months after reporting $91 billion in revenue in 2023, a decrease of 9.3% year over year. [caption id="attachment_69712" align="alignright" width="300"] (Courtesy/UPS)[/caption] “2023 was a unique and, quite candidly, a difficult and disappointing year,” UPS Chief Executive Carol Tome said in today’s fourth-quarter and full-year earnings call. “We experienced declines in volume, revenue and operating profit in all three of our business segments.” THE BIG PICTURE: UPS’ financial losses are tied to increased capacity and low demand, today’s earnings report stated. This is in line with the rest of the industry . “The macroenvironment in the fourth quarter showed improvements ... [but], also in the fourth quarter, continued macro pressures drove customers to seek economy products, as we saw customers shift volumes out of the air onto the ground,” Chief Financial Officer Brian Newman said in today’s call. “Total air average daily volume was down 15% year over year, and ground average daily volume was down 5.8% versus the fourth quarter of last year.” BY THE NUMBERS: UPS reported $24.9 billion in Q4 revenue, down 7.8% YoY. Also in Q4: U.S. domestic revenue was $16.9 billion, down 7.3% YoY; International r evenue was $4.6 billion, down 6.9% YoY; Supply Chain Solutions r evenue was $3.4 billion, down 11.4% YoY; and Adjusted diluted earnings per share of $2.47 was down 31.8% YoY. “Looking at Supply Chain Solutions, in international airfreight, overall volumes were down despite a mid-quarter spike in e-commerce,” Newman said. In full-year 2023: U.S. domestic revenue was $60 billion, down 6.6% YoY; International r evenue was $17.8 billion, down 9.5% YoY; Supply Chain Solutions revenue was $13.2 billion, down 19.9% YoY; Cash from operations was $10.2 billion and free cash flow was $5.3 billion; and UPS returned $7.6 billion of cash to shareowners through dividends and share buybacks. WHAT THEY’RE SAYING: UPS also placed some blame for its poor performance on labor negotiations , which resulted in package diversion to com petitors. The 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. “As contract negotiations became later and louder, we saw more volume diversion than we anticipated,” Newman said in the Q3 earnings call on Oct. 26. 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. “Looking at our volume trends for the fourth quarter, while total average daily volume (ADV) declined 7.5% from last year, our performance was a marked improvement from what we reported in the third quarter,” Tome said in today’s call. “U.S. domestic ADV surged 30% from the third quarter to the fourth, which was our highest sequential volume ramp ever.” STATE OF PLAY: Tome said UPS will “take some bold moves to right-size our company,” among them reducing the company’s workforce by 12,000 positions out of about 400,000 positions, which will save about $1 billion in 2024. Sev enty-five percent of the reductions will come in the first half of 2024, Newman said. “It’s a change in the way we work,” he said. “So, as volume returns to the system, we don’t expect these jobs to come back.” Though UPS declined to break down the job cuts by region or work group, the cuts will likely affect air operations, as they are going to be across the board. “The job cuts affect all UPS functions globally,” Brian Hughes , director of financial and strategy communications at UPS, told Air Cargo Next . “However, it’s important to note that the reduction of less than 3% of our workforce does not impact union-represented roles.” UPS spokesperson Michelle Polk said that UPS will provide severance packages and outplacement assistance to all those terminated. “We have about 85,000 UPSers who are management, and this can be full-time and part-time management,” Tome said in the call. “The targeted headcount falls really within that group, as well as some contractors that will be leaving us.” The second “bold move” is to explore strategic options, including sale, for truckload brokerage business Coyote , which was acquired in 2015 to be part of Supply Chain Solutions. Tome called Coyote “highly cyclical with considerable earnings volatility.” FLASHBACK: UPS made several tech advancements in 2023, such as: Integrating Happy Returns , allowing for box-free, label-free returns in more than 5,000 UPS store locations; Deploying UPS Velocity, which leverages robotics, automation, machine learning and AI, in select warehouses, including UPS’ Louisville, Ky., operations; and Growing the Digital Access Program, which helps small and medium-sized businesses conduct e-commerce through UPS and generated $2.9 billion in revenue in 2023, up 22% YoY. NOTEWORTHY: UPS announced plans in December to build a 20,000-square-meter facility at Hong Kong International Airport (HKG). Tome noted that 37% of all exports from China go through HKG, which ranked first by volume in Air Cargo Next ’s top 50 cargo airports list. 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. FUTURE LOOK: UPS expects 2024 revenue to range from $92 billion to $94.5 billion, according to the earnings statement. “In 2024, the small package market in the U.S., excluding Amazon , is expected to grow by less than 1% and projected market growth rates for the rest of our business segments picked up some improvement, but not until the latter part of the year,” Tome said. MARKET REACTION: Shares of UPS (NYSE: UPS) were down 8.19% from market open to $145.08 as of market close today. UPS has a market capitalization of $123.6 billion.

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