Sign in

    United Parcel Service Inc (UPS)

    Business Description

    United Parcel Service, Inc. (UPS) is a leading global package delivery company and provider of supply chain management solutions . The company operates through two main reportable segments: U.S. Domestic Package and International Package, collectively referred to as global small package operations, and Supply Chain Solutions . UPS's services include transportation and delivery, distribution, contract logistics, ocean freight, airfreight, customs brokerage, and insurance . The company also operates one of the largest airlines and fleets of alternative fuel vehicles globally .

    1. Global Small Package Operations - Provides time-definite delivery services for express letters, documents, small packages, and palletized freight via air and ground services. This segment includes:
      • U.S. Domestic Package - Involves the time-definite delivery of letters, documents, and packages throughout the United States .
      • International Package - Covers delivery to over 200 countries and territories worldwide .
    2. Supply Chain Solutions - Offers transportation and delivery, distribution, contract logistics, ocean freight, airfreight, customs brokerage, and insurance services .

    Q3 2024 Summary

    Initial Price$136.64July 1, 2024
    Final Price$133.27October 1, 2024
    Price Change$-3.37
    % Change-2.47%

    What went well

    • UPS achieved significant cost reductions and efficiency gains in Q3 through initiatives like 'Fit to Serve' and 'Network of the Future', leading to a 4% decrease in cost per piece in the U.S. Domestic segment. The company expects these cost improvements to continue into Q4 and into 2025, with additional benefits from automated facilities and productivity initiatives.
    • UPS is seeing positive trends in revenue per piece, expecting it to turn positive in the U.S. Domestic segment in Q4. This improvement is driven by a focus on revenue quality, pricing strategies enabled by their 'Pricing Architecture of Tomorrow', and effective use of surcharges and the General Rate Increase.
    • UPS's International segment is performing well despite macroeconomic softness, achieving an 18% operating margin in Q3. The company continues to enhance capabilities like automated hubs—60% of volume goes through automated hubs—and is the only carrier offering standard Saturday delivery at no charge in 8 markets in Europe, driving growth and increased customer share of wallet.

    What went wrong

    • Tempered Peak Season Volume Expectations: UPS's customers have lowered their volume forecasts for the upcoming peak holiday season. External forecasts for the fourth quarter have decreased from about 5% to approximately 3%, indicating potential softness in demand. This reduction is partly due to only 17 shipping days between Thanksgiving and Christmas, leading customers to possibly favor in-store purchases over online shopping.
    • Uncertainty in Negotiations with USPS: UPS is still negotiating the delivery service agreement with the United States Postal Service (USPS) for services like SurePost and Sunday delivery. Any challenges or delays in reaching an agreement could impact UPS's operations and ability to effectively serve customers relying on these services.
    • Industrial Economy Weakness: UPS has acknowledged weakness in the industrial economy, which could impact their domestic margins and volume growth. Despite efforts to manage costs and drive productivity, continued softness in industrial production may limit UPS's ability to expand margins without improvement in the macroeconomic environment.

    Q&A Summary

    1. Margin Outlook
      Q: What drives the expected profit increase into Q4 and impact on 2025?
      A: The profit increase from Q3 to Q4 is driven by a focus on revenue quality, pricing initiatives, and acceleration of Fit to Serve and Network of the Future productivity programs. We expect the domestic margin to be around 9.5% in '24 and to exit the year slightly higher than the 10% previously guided. We'll provide more details on 2025 after peak season.

    2. Revenue Per Piece Trends
      Q: How are domestic revenue per piece trends progressing?
      A: Domestic revenue per piece showed positive momentum from Q2 to Q3, with base rate impact improving from 90 basis points to 170 basis points. We expect revenue per piece to turn positive in Q4, driven by pricing actions enabled by our pricing architecture of tomorrow and adjustments like modifiers.

    3. Cost Improvements and Initiatives
      Q: How are cost initiatives impacting per-piece costs, and what's the outlook?
      A: Third-quarter cost performance was outstanding, with wage inflation decreasing from 12% in Q2 to 5.2% in Q3. We’ve accelerated Fit to Serve and Network of the Future initiatives, closing facilities and improving productivity. In Q4, we expect cost per piece to increase about 1%, still less than revenue per piece growth, maintaining a positive spread.

    4. USPS Contract Impact
      Q: How is the USPS onboarding affecting operations and profitability?
      A: The USPS volume is now fully onboarded after initial mismatches in Q3. We're seeing positive performance, with resources aligned as planned. We absorbed over 50 million cubic feet into our network in Q3, and the fourth quarter will reflect all volume being integrated.

    5. Pricing Environment
      Q: Are you experiencing increased price competition in the market?
      A: While the industry is price competitive, we see rational pricing. We focus on winning through service and capabilities like RFID, leading to growth in enterprise and SMB commercial volumes. These capabilities help drive revenue per piece growth despite competition.

    6. Largest Customer Volume Decline
      Q: How is the glide down with your largest customer affecting volumes?
      A: Our largest customer continues to reduce air volume with us, contributing to a 6.5% decline in air volume in Q3, entirely attributable to them. They are trading down from air to ground and shifting some volume to their own network, creating opportunities for us elsewhere.

    7. Capacity Adjustments
      Q: Do you see excess capacity, and how are you adjusting resources?
      A: We've proactively reduced capacity by closing 45 operational facilities, removing about 1 million packages per day from the market. We continue to adjust resources to match demand, adding for peak season but aligning overall capacity with the current environment.

    8. Peak Season Hiring
      Q: Why increase peak hiring despite softer volume expectations?
      A: We're hiring 125,000 seasonal employees this year, up from 100,000 last year, as our average daily volume will be positive. We hire based on need and have the flexibility to adjust quickly. We're also increasing helper teams with drivers by about 10% to optimize delivery during peak.

    9. Negotiations with USPS
      Q: What's the status of the USPS delivery service agreement negotiations?
      A: We're working to finalize a mutually agreeable contract with USPS, moving quickly and hoping to conclude soon. We'll share more details during our fourth-quarter earnings call.

    10. International Business Performance
      Q: How is international business performing amid macro weakness?
      A: Despite softer macro indicators, our international business expanded revenue, profit, and margin, posting an 8% margin. We've held cost per piece flat, delivering operating leverage, and plan to continue these strategies into next year.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    U.S. Domestic Package14,98714,39613,66016,91559,95814,23414,11914,450
    - Next Day Air2,4612,4072,3722,6549,8942,3162,3092,396
    - Deferred1,1941,1691,1281,6025,0931,1561,1071,109
    - Ground11,33210,82010,16012,65944,97110,76210,70310,945
    International Package4,5434,4154,2674,60617,8314,2564,3704,411
    - Domestic7947637428453,144758770771
    - Export3,5523,4683,3673,61614,0033,3503,4373,482
    - Cargo and Other197184158145684148163158
    Supply Chain Solutions3,3953,2443,1343,39613,1693,2163,3293,384
    - Forwarding1,5141,3761,3271,3175,5341,2801,3151,307
    - Logistics1,4101,4311,4301,6565,9271,5421,5461,550
    - Freight--------
    - Other4714373774231,708394468527
    Total Revenue22,92522,05521,06124,91790,95821,70621,81822,245
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    U.S. Domestic Package-14,39613,660-71,74914,23414,119-
    International Package-4,4154,267-19,2094,2564,370-
    - Domestic-----758--
    - Export-----3,350--
    - Cargo and Other-----148--
    Supply Chain Solutions-3,244---3,216--
    Total Revenue22,92522,05521,06124,91790,95821,70621,81822,245
    KPIs - Metric (Unit)FY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Average Daily Package Volume Growth (%)1.8%----10.8%25%-
    Business-to-Consumer Volume Growth (%)---13.4%---1.5%4.8%11.0%
    Business-to-Business Volume Growth (%)-5.4%-7.7%-9.0%---5.5%-4.6%0.8%
    Ground Residential Volume Growth (%)-2.1%-9.6%-12.3%--10.8%7.9%15.4%
    Fuel Surcharge Revenue Change ($ Million) Q3 2023---459-----
    Fuel Surcharge Revenue Change ($ Million) Q1 2024------12--
    Fuel Surcharge Revenue Change ($ Million) Q2 2024-------12-
    SurePost Volume Growth (%)1.8%----10.8%25%-

    Executive Team

    NamePositionStart DateShort Bio
    Carol B. ToméChief Executive OfficerJune 2020Carol B. Tomé has been serving as the CEO of UPS since June 2020. She was previously the CFO of The Home Depot, Inc. from 2001 until her retirement in 2019 .
    Norman M. Brothers, Jr.Executive Vice President; Chief Legal and Compliance Officer and Corporate Secretary2020Norman M. Brothers, Jr. is the EVP, Chief Legal and Compliance Officer, and Corporate Secretary at UPS since 2020. He was previously SVP, General Counsel, and Corporate Secretary from 2016 to 2020 .
    Nando CesaroneExecutive Vice President; President, U.S.2020Nando Cesarone has been the EVP and President, U.S. at UPS since 2020. He was previously the President of UPS International from 2018 to 2020 .
    Darrell FordExecutive Vice President; Chief Human Resources Officer and Chief Diversity, Equity and Inclusion Officer2022Darrell Ford has held his current position since 2022. He was previously the Chief Human Resources Officer from 2021 to 2022 .
    Matt GuffeyExecutive Vice President; Chief Commercial and Strategy Officer2024Matt Guffey became the EVP and Chief Commercial and Strategy Officer in 2024. He was previously SVP, Global Strategy from 2020 to 2023 .
    Kate M. GutmannExecutive Vice President; President International, Healthcare and Supply Chain Solutions2022Kate M. Gutmann has been in her current role since 2022. She was previously the Chief Sales and Solutions Officer and EVP, UPS Global Healthcare from 2020 to 2022 .
    Laura LaneExecutive Vice President; Chief Corporate Affairs, Communications and Sustainability Officer2020Laura Lane has held this position since 2020. She was previously the Chief Corporate Affairs and Communications Officer from August 2020 to October 2020 .
    Brian NewmanExecutive Vice President; Chief Financial Officer2021Brian Newman has been the EVP and CFO at UPS since 2021. He was previously the CFO and Treasurer from 2019 to 2021 .
    Bala SubramanianExecutive Vice President; Chief Digital and Technology OfficerJuly 2022Bala Subramanian joined UPS in July 2022. He was previously the Chief Digital Officer at AT&T Inc. from 2018 to 2022 .
    Brian DykesExecutive Vice President and Chief Financial Officer2024Brian Dykes became the EVP and CFO at UPS in 2024, bringing over 25 years of multinational experience with the company .

    Questions to Ask Management

    1. With the completion of 45 operational closures and the removal of about 1 million ADV per day of capacity, how will this reduction affect your ability to handle increased volumes during the compressed peak holiday season, especially given the expected surge on December 18?

    2. Revenue per piece in the U.S. Domestic segment declined 2.2% year-over-year, impacted by factors like lighter weights and shorter zones; what strategies are you implementing to sustain revenue quality improvements amidst these ongoing pressures?

    3. Considering the sale of Coyote and the acquisition of Frigo-Trans, how do these moves align with your long-term growth strategy in Supply Chain Solutions, and what are the anticipated impacts on your operating margins in this segment?

    4. Given the macro environment was worse than expected, with slowing online sales and lower manufacturing activity, how confident are you in achieving your updated full-year revenue of approximately $91.1 billion, and what contingency plans are in place if economic conditions deteriorate further?

    5. As union wage rate growth slowed to 5.2% and productivity initiatives offset 50% of the wage increase, can you provide more detail on how you plan to continue driving cost efficiencies without compromising service levels, particularly as you execute additional projects in 2025?

    Share Repurchase Program

    Program DetailsProgram 1Program 2
    Approval DateAugust 2021 January 2023
    End Date/DurationTerminated January 2023 Ongoing as of September 30, 2024
    Total additional amount$5.0 billion $5.0 billion
    Remaining authorization amountN/A$2.3 billion as of September 30, 2024
    DetailsTerminated Active, aims to repurchase about $1 billion annually

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024 and FY 2024
    • Guidance:
      • U.S. Domestic Segment:
        • Q4 revenue expected to increase by 1.5%.
        • Q4 operating margin expected to be approximately 9.5%, exiting the year slightly higher than 10% .
      • International Segment:
        • Q4 revenue growth expected to be mid-single digits year-over-year.
        • Q4 operating margin expected to be around 20% .
      • Supply Chain Solutions:
        • Q4 revenue expected to be around $3.3 billion.
        • Q4 operating margin expected to be approximately 9% .
      • Full Year 2024:
        • Free cash flow expected to be around $5.1 billion after a $1.4 billion pension contribution.
        • Capital expenditures expected to be about $4 billion.
        • Dividends expected to be around $5.4 billion, subject to Board approval.
        • Tax rate expected to be between 23% and 23.5% .
      • Consolidated Level:
        • Full year revenue expected to be approximately $91.1 billion.
        • Consolidated operating margin expectation lifted to approximately 9.6% .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Second half of 2024 and FY 2024
    • Guidance:
      • Consolidated Revenue: Approximately $93 billion for the full year .
      • Consolidated Operating Margin: Approximately 9.4% .
      • U.S. Operating Margin: Expected to exit the final month of 2024 with a 10% operating margin .
      • International Segment:
        • Revenue growth in the second half expected to be mid-single digits.
        • Operating margin in the second half anticipated to be approximately 20% .
      • Supply Chain Solutions:
        • Revenue in the second half expected to be over $7 billion.
        • Operating margin in the high single digits .
      • Tax Rate: Approximately 22% for the remainder of the year .
      • Free Cash Flow: Expected to be around $5.8 billion before any pension contribution for the full year .
      • Capital Expenditure: Forecasted to be about $4 billion .
      • Dividends: Plan to pay out around $5.4 billion, subject to Board approval .
      • Share Repurchases: Plan to repurchase approximately $500 million of shares in 2024 .
      • Volume Growth:
        • U.S. Domestic average daily volume expected to grow by mid-single digits in the second half .
      • Revenue Per Piece (RPP):
        • Expected to decline by about 1.4% in the third quarter and 0.4% in the fourth quarter .
      • Operating Profit:
        • U.S. Domestic operating profit expected to grow by double digits in the third quarter .
      • Peak Season: Anticipated strong peak driven by volume growth and demand surcharges .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      • Full Year 2024 Consolidated Financial Targets:
        • Revenue: Expected to range between $92 billion and $94.5 billion .
        • Consolidated Operating Margin: Expected to range from approximately 10% to 10.6% .
      • First Half of 2024:
        • Consolidated Operating Profit: Expected to be down between 20% and 30% .
      • Second Half of 2024:
        • Volume and Revenue Growth: Expected to accelerate as they lap the diversion experienced due to labor negotiations .
      • U.S. Operating Margin:
        • Expected to exit the year at 10% .
      • Capital Expenditures:
        • Expected to be around 5% of revenue, approximately $4.5 billion .
      • Free Cash Flow:
        • Expected to be within a range of approximately $5.9 billion to $6.7 billion before reflecting any pension contributions .
      • USPS Air Cargo Volume:
        • Expected to benefit operating margins at both the consolidated level and within the U.S. Domestic segment .
      • 2026 Targets:
        • Revenue: Aimed to grow to between $108 billion and $114 billion by 2026 .
        • Consolidated Operating Margin: Expected to expand to more than 13% by 2026, with the domestic operating margin expanding to at least 12% .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: N/A
    • Guidance: The documents do not contain information about the guidance provided by UPS in their Q4 2023 earnings call.