UPS sees Q2 earnings rise while volumes decline

Second quarter 2022 earnings results issued earlier today by Atlanta-based global transportation and logistics services provider UPS saw another quarter of solid growth amid mixed economic signals.

Quarterly revenue—at $24.8 billion—rose 5.7% annually, and adjusted earnings per share—at $3.29—saw a 7.5% increase, topping Wall Street estimates of $3.16 per share. Quarterly operating profit was up 8.5% to $3.5 billion.

“I want to thank UPSers around the world for delivering outstanding service to our customers,” said Carol Tomé, UPS chief executive officer, in a statement. “While the external environment is ever changing, our better not bigger strategic framework has fundamentally improved nearly every aspect of our business, enabling greater agility and strong financial performance.”  

Individual segment results for UPS in Q1 2022:

• U.S. domestic package revenue saw a 7.3% annual increase, to $15.459 billion, and average daily package volume fell 4.0%, to 19.686 million, with UPS attributing the revenue growth to an 11.9% gain in revenue per piece, to $12.97;
• International Package revenue, at $5.073 billion, rose 5.3%, driven by the gains in revenue per piece, with average daily volume down 9.2%, to 3.386 million, and total revenue per package up 14.8%, to $22.17; and
• Supply Chain Solutions revenue, at $4.234 billion, eked out a 0.7%% increase paced by gains in its Forwarding and Healthcare units, with a record $517 million in operating profit.

On the company’s earnings call this morning, Tomé said that the macroeconomy remained dynamic, adding that the company expected quarterly volume levels to decline compared to a year ago, adding that the decline was steeper than anticipated.

“Despite the decline in volumes, we continue to win in the most attractive parts of the market, with strong gains in revenue quality,” she said. “Under our ‘Better not Bigger’ strategy, our actions are creating a more resilient UPS. We are delivering better service for our customers and stronger financial results for our shareholders.”

The CEO also noted that UPS is growing in parts of the market where it wants to grow, including SMB (small- and medium-sized businesses), healthcare, B2B, and certain large enterprise accounts, by providing outstanding service and focusing on the capabilities which matter the most to UPS customers.

UPS CFO Brian Newman said on the call that there were many crosscurrents that contributed to a dynamic macroenvironment.

“In the U.S., even with high inflation and increasing interest rates, the job market and consumer spending remained strong, with a growing share of wallets spent on services” he said. “Internationally, the environment continued to be negatively impacted by Covid-19 lockdowns in Asia and geopolitical issues, both of which drove complexity in the market for customers. Despite these external factors, we remained agile and delivered strong second quarter results as expected.”

For its U.S. domestic segment, Newman said revenue quality initiatives more than offset volume declines and drove strong quarterly results. And he noted that more than half of the volume decrease was due to actions UPS took with a few of its largest customers to optimize air and ground volume UPS brings into its network.

“A majority of the volume reduction from these customers was residential,” he said. “We expected to fill this gap with other enterprise volume, but macroconditions made that challenging. In the second quarter, residential volume declined 8.2% and was partially offset by a 2.3% increase in average B2B daily volume. B2B represented 43% of our volume, which was up from 40% in the second quarter of 2021. We are continuing to win in the most attractive parts of the market, due to our industry-leading service and capabilities.”

What’s more, he said that, for the second quarter, SMB average daily volume, including platforms, was up 3.3% annually, with SMB now comprising 29.2% of the company’s U.S. domestic volume, up 200 basis points annually, with the company well on the path to hitting its 30% 2023 goal.

Jerry Hempstead, president of Hempstead Consulting, said that despite daily shipments, for both domestic and international, were down annually, revenue-per-package handled continued to increase.

“So, UPS is handling less packages but charging the shipper more per package, part of it is the effect of fuel, but mostly it Is because of the race between FedEx and ups to see who can make the most money,” he said. “The shippers are watching the power of a duopoly at work. Shipping is—and is going to be—more and more expensive, and shippers are going to have to prepare their management for that and budget accordingly.”