A person walks into a United Parcel Service (UPS) customer center on April 1, 2024 in Los Angeles, California.
Mario Tama | Getty Images
United Parcel Service On Tuesday it reported second-quarter profit and revenue that fell short of expectations and cut revenue guidance for 2024.
The company’s stock fell more than 13% in midday trading, on pace for its worst day on record.
“Our revenue was well short of the lows given the current volume dynamics that we are now experiencing in our business,” UPS CEO Carol Tomé said during the company’s earnings call. “Accordingly, we are adjusting our full-year operating margin guidance to reflect the nature of the volume flowing through our US network.”
UPS now expects 2024 revenue to be around $93 billion, revised up from a previous forecast of up to $94.5 billion. However, full-year capital spending is now expected to be around $4 billion, down from the previous $4.5 billion.
UPS noted that the current outlook for 2024 still includes revenue from its Coyote Logistics trucking business, which the company recently announced it would sell to RXO, Inc. The transaction is expected to close by the end of the year, freeing up cash that the company plans to use for share repurchases totaling about $500 million.
The company also recently entered into an agreement to acquire Mexican express delivery company Estafeta, which the company aims to close by the end of the year.
See how the shipping giant did in quarter ended June 30 compared to what Wall Street expected, based on a survey of analysts by LSEG:
- Earnings per share: $1.79 cents adjusted vs. $1.99 expected
- Income: $21.8 billion vs. $22.18 billion expected
The company’s reported net income for the quarter was $1.41 billion, or $1.65 cents per share, compared with $2.08 billion, or $2.42 per share, a year earlier. Adjusting for the impact of settling an “international regulatory matter,” UPS posted earnings of $1.79 per share.
The company reported operating profit of $1.94 billion, up from $2.78 billion a year earlier.
“This quarter was a significant turning point for our company as we returned to US volume growth for the first time in nine quarters,” Tomé said in the company’s earnings release. “As expected, our operating profit declined in the first half of 2024 from what we reported last year. Going forward, we expect to return to operating profit growth.”
Revenue also fell to $21.82 billion, from $22.06 billion a year earlier, mainly due to declines in the company’s domestic and international divisions.
Its US operation saw a 1.9% decline in revenue, which the company said was mainly due to changes in product mix.
“Product mix is expected to continue to pressure unit revenue, however through cost management and slowing labor inflation, we expect to grow Q3 operating profit by double digits and exit the year with an operating margin of 10% in USA,” CFO Brian Dykes said.
Aug. 1 will mark the one-year anniversary of UPS’s massive five-year labor contract with the International Brotherhood of Teamsters, which included big wage increases. The company said during the earnings call that it expects cost pressures associated with the contract to “decline dramatically in the second half” of the year.
UPS’s international division saw revenue decline 1% in the second quarter, which UPS attributes to a 2.9% decline in average daily volume.
The company’s third division, supply chain solutions, grew its revenue by 2.6% from the same period last year, driven mainly by growth in logistics, including healthcare.
Mission volumes
The report comes as weak freight demand and low prices in the shipping sector are causing what some say are challenges global freight recession; Investors had turned to UPS earnings to gauge whether demand was improving.
The company said it saw pockets of improved demand outside the US
Volume growth in the quarter was driven in part by e-commerce, as business-to-consumer volume increased to account for 58.5% of UPS’s total volume, the company said.
“There were two new e-commerce customers that came into our network and you can imagine who they are. These are new e-commerce shippers in the United States whose volume has been quite explosive,” said CEO Tomé. “[The volume] it was definitely more than we expected to flow into our network.”
A recent analyst note from Wells Fargo predicted that Temu and Shein lead the market, representing “significant global small package volume growth” and driving “favorable supply/demand and better pricing.”
Within the US, CFO Dykes said the company saw customers prefer “more affordable products”, choosing Ground and the non-urgent value option SurePost over the more expensive Air shipping.
UPS recently won an air cargo contract with the United States Postal Service from rival FedExwhich the company included in its guidance for fiscal 2024. UPS will become USPS’ primary air cargo provider starting Oct. 1, after FedEx’s current contract expires.
Although the financial details of the deal were not previously disclosed, UPS referred to the award as “significant” in a press release in April. The deal paid FedEx $1.75 billion in 2023, the company said.
Correction: UPS reported second-quarter earnings and revenue on Tuesday. An earlier version misstated the day.
