UPS Expects Second-Half Return to Volume and Revenue Growth (2024)

UPS saw first-quarter consolidated revenues decline 5.3 percent to $21.7 billion, driven by declines in daily volume across both domestic and international, on net income of $1.1 billion.

Revenue decreased 5 percent in the U.S. domestic segment to $14.2 billion, driven by a 3.2 percent decrease in average daily volume to 18.1 million packages. Internationally, packages saw a steeper revenue drop at 6.3 percent to $4.3 billion, where volume dipped 5.8 percent to 3.1 million packages.

According to Carol Tomé, UPS CEO, the rate of decline in the U.S. slowed as the season progressed, with average daily volume dipping less than 1 percent year over year in March. In a Tuesday morning earnings call, Tomé attributed the improvements to new volume being pulled into the UPS network.

UPS is expected to return to positive volume and revenue growth in the 2024 second half.

Net income was down more than 41 percent from year-ago totals of $1.9 billion, due in large part to the higher labor costs associated with the first year of the Teamsters contract.

UPS has sought to offset the costs of these union contracts, with wage rates for these employees increasing 13 percent in the quarter.

Chief financial officer Brian Newman said in the call that the company’s “labor cost growth rate will drop substantially” in the second half of the year.

“We will also see the majority of the $1 billion in savings from Fit to Serve” in the back half, he said, referring to the 12,000 layoffs that began in January.

The company wants to cut expenses across the board, outlining goals to cut costs by $3 billion last month as part of its Network of the Future plan. So far, the moves appear to be working, with adjusted operating expenses down 0.8 percent in the quarter as UPS used network planning tools to reduce total operational hours 6.6 percent.

UPS also closed 18 sorting centers and reduced operational resources 4.8 percent year over year, while cutting management and support staff head count by 5,400 positions

For the first quarter, domestic revenue per piece (RPP) was relatively flat from last year, while international RPP grew 2 percent. Over the next three years, UPS wants RPP to grow faster than cost per piece (CPP)—with goals to increase RPP 2.5 percent per year, while increasing CPP 1 percent per year.

Newman said UPS expects RPP to outperform CPP in the second half.

As the company replaces rival FedEx as the primary air cargo partner of the United States Postal Service (USPS), the firm indicated that the majority of the volume will fit within UPS’ existing U.S. daytime flight operations.

Tomé said the USPS business will contribute to top-line growth and be accretive to consolidated and U.S. domestic operating margins. According to Tomé, UPS expects the air cargo contract to be profitable in its first year and throughout the more than five-year deal.

As the company gets ready to onboard packages from the USPS into its network, Newman acknowledged UPS’ current slow demand in the air.

“We continue to see a shift from air to ground as customers prioritize cost savings over transit times by taking advantage of our ground services,” Newman said.

Tomé also touched further on the advancements of UPS’ Smart Package, Smart Facility RFID package-tagging initiative, with plans to install RFID readers in more than 40,000 U.S. package cars in 2024, with the remainder set to be implemented in 2025.

The package car readers will enable UPS to further reduce misloads, Tomé said.

Despite the overall volume declines, UPS is reaping the benefits of nearshoring. According to a recent survey from QIMA, 53 percent of U.S. businesses say nearshoring and reshoring are a part of their 2024 supply chain strategy.

“More than offsetting declines in Asia, nearshoring became evident as export average daily volume in the Americas region increased 3.8 percent,” said Newman. “This was led by SMB customers in Canada and Mexico leveraging our cross-border ground service.

Aside from its parcel shipping businesses, the performance of the UPS supply chain solutions segment speaks to some of the wider concerns in the macroeconomic environment.

The segment saw a 5.3 percent decrease in revenue to $3.2 billion on a 12.4 percent adjusted operating profit decline to $226 million.

“Within forwarding, market rates in international air freight continue to drive down top-line revenue,” Newman said in the call. “On the ocean side, excess market capacity continued to pressure market rates and drove a decrease in revenue despite volume growth. And our truckload brokerage unit [Coyote Logistics] continued to face soft demand and market rate pressures.”

For 2024, UPS reaffirmed its full-year financial targets, maintaining expected revenue to range from approximately $92 billion to $94.5 billion. The current forecast would be a 1.1 percent to 3.8 percent jump from 2023 revenue numbers.