UPS Q4 revenue falls by 2.7%


UPS has reported mixed fourth quarter results, beating Wall Street’s earnings per share expectations but missing on revenue. The logistics giant reported that its quarterly revenue is down 2.7% from last year ($27bn) and adjusted operating profit down 3.3% y-o-y, as the company continues to see falling volumes and cooling demand.

Revenue dipped across the International Package segment by 8.3%  y-o-y for the quarter, driven by an 8.6% reduction in average daily volume due to lower domestic volume and softness in China trade lanes. Revenue also decreased in the Supply Chain Solutions business by 18.1% due to volume and market rate declines in air and ocean freight forwarding, partially offset by growth in UPS’ healthcare business. Revenue for UPS’ domestic express segment, which makes up about two-thirds of the company’s revenue and most of its business-to-consumer transactions, grew 3.1%, driven by a 7.2% increase in revenue per piece.

CFO Brian Newman said in a call with analysts that “[UPS expects] 2023 to be a bumpy year”. Yet Newman also said that UPS expects about 56% of its profit to come in during the second half of the year, counting on U.S. and international challenges easing during the later months of 2023.

For the full year, UPS exhibited significantly slower growth rates than in 2021, with revenue increasing by 3.1% y-o-y to $100.3bn, whilst adjusted operating profit increased by 5.4% y-o-y to $13.9bn as average daily package volumes decreased across both the US Domestic and International Package segments (3.1% y-o-y and 7.5% y-o-y, respectively).

Looking forward, UPS reported that it expects revenue to be between $97.0bn and $99.4bn and consolidated adjusted operating margin of between 12.8% and 13.6% for the full year 2023.

Chief Financial Officer Brian Newman said on the post-earnings conference call with analysts that the “base-case” assumption that led to the 2023 guidance was that there would be a “mild recession” in the U.S. in the first half of the year, followed by a “moderate recovery” in the second half.

In Europe, Newman said, the company expects a recession in the first half of the year, and for China, it expects weak demand in the first quarter with a recovery beginning in the second quarter.

Along with a slowing macro environment, UPS is also preparing for labour negotiations in the coming fiscal year with its current labour contracts set to expire on July 31. The UPS Teamsters union, which represents 350,000 UPS workers, has been gearing up for the contract talks and said it would strike if they had not reached an agreement by Aug. 1, a day after the current contract expires. On a call with analysts, CEO Carol Tomé said that “there have been a lot of articles and headlines that might cause someone to question whether a win-win-win is achievable.” Points of negotiation will include improving safety conditions and shortening work hours like “the sixth punch,” a term Tomé described as the sixth day of the week that UPS workers have increasingly had to work.

Despite a subdued outlook for 2023, some analysts remain optimistic. In a note to clients, Cowen analyst Helane Becker wrote: “UPS has managed expenses well during the global volume decline and air freight normalization, so we are confident about their ability to achieve their margin goals”. As we enter an increasingly uncertain macro-economic environment, investors will likely be keeping a close eye on how management deal with an increasingly challenging operating environment throughout the year.

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