UPS Reports Lower Q1 Earnings Amid Declining Package Volumes

UPS, the world's largest parcel delivery company, reported a 5.3% decline in first-quarter consolidated revenues to $21.7 billion, driven by declines in daily volume across both domestic and international operations. The company's net income was down over 41% due to higher labor costs associated with the Teamsters contract, but it aims to offset these costs through various cost-cutting measures, including layoffs and network optimization.

Domestic US revenue decreased 5% to $14.2 billion, with a 3.2% drop in average daily volume to 18.1 million packages. Internationally, revenue fell 6.3% to $4.3 billion, with a 5.8% dip in volume to 3.1 million packages. However, the rate of decline in the US slowed as the season progressed, with March seeing less than a 1% year-over-year drop. UPS expects to return to positive volume and revenue growth in the second half of 2024.

Despite the overall volume declines, UPS is benefiting from nearshoring trends, with export volume in the Americas region increasing 3.8%. The company's CEO, Carol Tomé, attributed the decline in average daily volume (ADV) to the UPS sales team's efforts to pull new volume into the network, and noted that outside the U.S., ADV decline rates improved sequentially compared to the fourth quarter of 2023.

Why this matters: UPS's earnings report reflects the ongoing challenges faced by the logistics industry amid a slowdown in e-commerce demand and rising labor costs. The company's performance and outlook provide insights into the broader economic landscape and the strategies employed by major players to address these obstacles.

UPS is gearing up to move the majority of the US Postal Service's domestic air cargo volume under a new contract, which will be officially implemented the day after the FedEx deal expires. UPS executives expressed confidence that the new contract will help boost the company's bottom line, as it looks to shake off a recent stretch of weak quarterly results.

Looking ahead, UPS reaffirmed its full-year guidance, projecting revenue of $92.0 billion to $94.5 billion and an adjusted operating margin of 10.0% to 10.6%. Carol Tomé stated, "The financial performance was in line with expectations and that they expect to return to volume and revenue growth going forward."

Key Takeaways

• UPS reported a 5.3% decline in Q1 2024 consolidated revenues to $21.7B.
• UPS's net income fell over 41% due to higher labor costs from Teamsters contract.
• Domestic US revenue decreased 5% to $14.2B, with a 3.2% drop in daily volume.
• UPS expects to return to positive volume and revenue growth in H2 2024.
• UPS is set to take over majority of USPS domestic air cargo under a new contract.