UPS reports third quarter earnings gains

Third quarter earnings results issued by Atlanta-based global freight transportation and logistics services provider UPS headed up.

Quarterly consolidated revenue, at $22.2 billion, increased 5.6% annually, and adjusted earnings per share, at $1.76, topped the $1.57 reading a year ago. Consolidated quarterly operating profit came in at $2.0 billion, which was up 47.8% annually.

“I want to thank all UPSers for their hard work and efforts. After a challenging 18-month period, our company returned to revenue and profit growth,” said Carol Tomé, UPS chief executive officer, in a statement. “Peak season is nearly upon us, and we are ready to deliver another successful holiday season and continue the progress we demonstrated in the third quarter.”

Individual segment results for UPS in Q2 2024:

• U.S. domestic package revenue increased 5.8%, to $14.450 billion, driven by a 6.5% gain in average daily volume, at 18.407 million, while average daily revenue per piece, at $12.27, down 2.2%;
• International package revenue, at $4.411 billion, rose 3.4% annually, paced by a 2.5% increase in revenue per piece, at $21.30, with average daily package volume, at 3.120 million, off 0.6%; and
• Supply Chain Solutions revenue, at $3.384 billion, increased 8.0% annually, due to growth in air and ocean forwarding, coupled with the continued onboarding of USPS air cargo

On a UPS-hosted earnings call earlier today, CEO Tomé explained that the second quarter would not only be a bottoming but also a turning point for the company’s performance—and return to revenue and profit growth in the third quarter, which she noted came to fruition.

“In the U.S., online sales slowed and manufacturing activity was lower than we anticipated,” she said. “This slowdown in manufacturing activity was also true outside of the U.S., as we continue to see lower industrial production weigh on volume in certain geography. But the macro environment didn't prevent us from growing revenue and profit as we leaned into the parts of the market that value our end-to-end network and we drove expense leverage through ongoing productivity initiatives.”

And she added that the second quarter represented the second consecutive quarter of average daily package volume growth, as well as its highest year-over-year average daily package volume growth going back to the first quarter 2021. She said that on the international side, the quarter was “flattish,” while continuing the upward growth momentum it had seen since the first quarter of 2024.

With volume flowing back into the company’s U.S. network, Tomé said that UPS has heightened its attention on revenue quality, or pricing, by focusing on the segments of the market it wants to serve.

To that end, she noted that in the second quarter, UPS saw an unexpected surge of short-zone lightweight e-commerce packages flow into its network. And in the third quarter, she said UPS responded strategically, adjusting its pricing and optimizing its operating plans on a portion of this business.

“We increased our focus on matching our pricing to the quality and attributes of the service we provide,” she said. “We did this by leveraging the power of pricing science through our pricing architecture of tomorrow, or AOT technology. Our revenue-per-piece growth rate improved in the third quarter from what we reported in the second quarter, and we expect this trend to continue.”

The top UPS executive also addressed how the company is in the process of onboarding its new air cargo business with the United States Postal Service (USPS), explaining that during the third quarter UPS’s network planning teams worked closely with the USPS to ensure a smooth transition. And as of October 1, she said that all contracted USPS air cargo business has been onboarded to the UPS network—with the expectation that this business will deliver strong, consistent revenue at an attractive margin.

Looking at the 2024 Peak Season, Tomé pointed out that the 2024 holiday season has only 17 shipping days between Black Friday and Christmas Eve, making it the most compressed Peak Season since 2019.

“We have been collaborating with our customers on daily volume expectations and the timing of their promotions,” she said. “While our customers are still expecting a good holiday selling season, recently, shippers have tempered their volume expectations. In any case, we'll be ready to deliver, and we'll leverage our network planning tools and other proven technologies to control, first, how the volume comes in, second, how to flow more volume to our automated facilities, and third, how to adjust the network to operate as efficiently as possible. On our peak day, which is December 18 in the U.S., we expect to deliver 2 million more packages than we did on peak day last year, but we'll do it at a higher productivity rate. This will be possible due to the efficiency improvements we've made over the years and the use of seasonal support drivers, many of which are experienced part time, UPSers who work inside our facilities. To sum it up, we're ready to deliver another successful peak.”

From a financial perspective, she said that the aforementioned USPS air cargo business, which is predictable and margin positive, as well as the divestiture of the Coyote truckload business, which she described as highly volatile, serve as drivers for UPS’s “Better not Bigger” approach.

UPS CFO Brian Dykes said on the call that from a modal service perspective, UPS continued to see customers shifting down from air to ground, with some ground volume shifting down to SurePost, its economy ground service for delivery to residential locations, with final delivery handled by the USPS.

“SurePost volume levels rose slightly compared to the second quarter, driven by growth in our Digital Access Program,” he said. “While SurePost volume comes at a lower revenue-per-piece, given the enhancements we've made to our matching algorithm, we were able to redirect more SurePost packages into our network, driving delivery density. “For the quarter B2B, average daily volume was up 0.8% year-over-year, increasing for the first time in two years. Growth was driven by SMBs, which had an increase in B2B average daily volume of 3.8%. B2C average daily volume increased 11% year-over-year and made up 58.3% of our volume, a slight downward shift from the second quarter. In terms of customer mix, we saw ADV growth from both enterprise and SMB customers. SMBs made up 29.4% of total US volume in the third quarter.”

Jerry Hempstead, president of Orlando-based Hempstead Consulting, told LM that UPS had a relatively good quarter especially with their ground service, which he said is really is the coal that makes the steam that pulls the UPS train.

“The concerning thing for the shipper is that the improved yields in their services is borne on the backs of the shippers who are paying more and more for the services purchased,” he said. “On the conference call UPS was not shy in boasting that Q4 is loaded with peak surcharges and that the market has to tolerate the price increases because both big carriers are taking prices up. The concerning thing on a macro level is that domestic air volume is down significantly. Next-Day Air in particular is down about 5% annually ( note FedEx saw that same decline for Next-Day Air in its most recent report for the quarter ending August 31). UPS has now integrated all the USPS business that FedEx had enjoyed. So a billion dollars worth of business just changed hands. My experience is that this large exodus of top line revenue is going to have FedEx scrambling to find ways to take large amounts of costs out of their business. That is often painful for shippers.”