An individual enters a UPS (United Parcel Service) customer center in Los Angeles, California on April 1, 2024.
Mario Tama |
United Parcel Service reported second-quarter earnings and revenue that fell below expectations on Tuesday and cut its 2024 revenue forecast. The company’s stock fell 12%, marking its worst day ever.
“Given the current volume dynamics we are currently experiencing in our business, our revenues were just below the low end,” UPS CEO Carol Tomé said throughout the company’s earnings call. “As a result, we are adjusting our full-year operating margin guidance to reflect the type of volume flowing through our U.S. network.”
UPS now expects revenue of about $93 billion for 2024. The previous forecast was $94.5 billion. However, capital spending for the total 12 months is now expected to be about $4 billion, up from the previous $4.5 billion.
UPS noted that its current 2024 outlook still includes revenue from its freight forwarding business, Coyote Logistics, which the corporate recently announced the sale of. RXO, IncThe transaction is predicted to shut by the top of the 12 months and can liberate money that the corporate plans to make use of for share buybacks totaling roughly $500 million.
The company also recently entered into an agreement to amass Mexican express delivery company Estafeta and intends to finish the acquisition by year-end.
The shipping giant has thus Quarter ended June 30 in comparison with Wall Street expectations based on an analyst survey conducted by LSEG:
- Earnings per share: 1.79 cents adjusted in comparison with 1.99 cents expected
- Revenue: $21.8 billion in comparison with expected $22.18 billion
The company’s 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 12 months earlier. Adjusted for the impact of the settlement of an “international regulatory matter,” UPS reported earnings of $1.79 per share.
The company reported operating profit of $1.94 billion, down from $2.78 billion a 12 months earlier.
“This quarter was a significant turning point for our business as we returned to volume growth in the U.S. for the first time in nine quarters,” Tomé said in the corporate’s earnings release. “As expected, our operating profit in the first half of 2024 declined compared to the prior year. Looking ahead, we expect a return to operating profit growth.”
Sales also fell to $21.82 billion from $22.06 billion a 12 months earlier, mainly attributable to declines in the corporate’s domestic and international business.
The US business recorded a 1.9% decline in sales, which the corporate said was primarily attributable to changes within the product mix.
“Product mix is expected to continue to put pressure on unit sales, but through cost management and moderating wage inflation, we expect double-digit operating income growth in the third quarter and will end the year with a U.S. operating margin of 10%,” said CFO Brian Dykes.
August 1 marks the one-year anniversary of the signing of a large five-year contract between UPS and the International Brotherhood of Teamsters that included big wage increases. The company said during its earnings call that it expects cost pressures related to the contract to “ease dramatically in the second half of the year.”
UPS’s international segment reported a 1% decline in revenue within the second quarter, which UPS attributed to a 2.9% decline in average every day volume.
The company’s third segment, supply chain solutions, increased its revenue by 2.6% in comparison with the identical period last 12 months, mainly attributable to growth in logistics, including healthcare.
Shipping volume
The report comes as weak freight demand and low prices within the shipping sector are resulting in what some are calling a world freight recession. Investors had been watching UPS’s results to grasp whether demand is recovering.
The company said it was seeing improved demand outside the U.S.
Volume growth within the quarter was partly attributable to e-commerce, as business-to-consumer volume increased, accounting for 58.5 percent of UPS’s total volume, the corporate said.
“There were two new e-commerce customers that joined 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] was definitely greater than we expected when it got here into our network.”
A recent Wells Fargo analyst note predicted that Temu and Shein would drive the market, accounting for “significant global growth in small package volume” and driving “favorable supply-demand dynamics and better pricing.”
In the US, said CFO Dykes, the corporate found that customers preferred “more economical products” and preferred ground shipping and the cheap SurePost option, which is just not as urgent, to dearer air freight shipping.
UPS recently acquired an air freight contract with the United States Postal Service from a competitor FedExwhich the corporate included in its fiscal 12 months 2024 forecast. UPS will change into USPS’ primary air freight provider starting October 1, after the present contract with FedEx expires.
Although financial details of the deal haven’t yet been disclosed, UPS described the order as “significant” in an April press release. The deal would bring FedEx $1.75 billion in fiscal 12 months 2023, the corporate said.
Correction: UPS reported second-quarter earnings and revenue on Tuesday. An earlier version incorrectly stated the date.
