Consultant’s Insight: UPS reports disappointing start to 2023

“2023 is proving to be an interesting year,” UPS Chief Executive Carol Tome said during the company’s first-quarter earnings call today. A weakening economic environment and excess delivery capacity resulted in a disappointing Q1 earnings announcement from UPS as financials and volumes declined for the quarter. Consolidated revenue declined 6.2% to $2.5 billion, while consolidated operating profit was down 21.8% to $2.5 billion, and down 22.8%, on an adjusted basis. “In the first quarter, deceleration in U.S. retail sales resulted in lower volume than anticipated, and we faced ongoing demand weakness in Asia,” Tome said in a statement . “In response, we focused on controlling what we could control and delivered a first-quarter consolidated operating profit and operating margin in line with our base case targets. Given current macro conditions, we expect volume to remain under pressure. We will remain focused on driving productivity while investing in efficiency and growth initiatives, enabling us to come out of this demand cycle even stronger.” International revenue falls The International and Supply Chain divisions led the decline as double-digit declines in Asia exports to the United States resulted in lower revenue for both groups. Total International revenue fell 6.8%, driven by a 6.2% reduction in average daily volumes. In comparison, the Supply Chain division [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] reported a 22.5% decline in revenue due to market rate and volume declines in the forwarding group. Meanwhile, growth in the health care group helped to prop up the International division and continues to grow — on track to exceed its annual 2023 revenue plan of more than $10 billion. There are also plans to open seven dedicated health care facilities this year. Volume shifts from the air to the ground were observed during Q1 as shippers opted for less costly delivery services such as UPS’ hybrid service, SurePost, which benefited with volumes up 2% year over year. The U.S. Domestic division reported a 0.9% decline in revenue and a 5.4% decrease in average daily volume. A 4.8% increase in average revenue per piece helped offset the decline in package volume. ‘Culture shift’ a response to lower volumes In response to volume declines, UPS is reducing block hours in its air operations, driving more volumes to its major automated hubs, and shutting down some sortation facilities, something unheard of until now. Chief Financial Officer Brian Newman described it as a “culture shift,” telling analysts on today’s earnings call that in today’s environment, “everything’s on the table.” Indeed, the company is managing the volume declines by reducing headcount, reducing block hours further in Q2, and continuing to follow its Total Service Plan, which was introduced last year to help UPS better utilize its automated facilities by moving volume from legacy facilities to newer and more automated facilities. UPS expects improvements in the second half of 2023 but at a lower base than expected due to a “challenging environment” and changes in consumer behavior, including a shift from purchasing goods to purchasing services.

Consultant’s Insight: UPS reports disappointing start to 2023

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