Q4 2024 Earnings Summary
- UPS is strategically shifting its focus to high-growth, high-margin segments such as healthcare, SMBs, and B2B, expecting significant growth in these areas. For instance, UPS plans to increase its healthcare revenue from $10.5 billion to $20 billion by 2026, tapping into a total addressable market of over $80 billion.
- By accelerating the reduction of volume from its largest customer, which is highly dilutive to margins, UPS is able to reconfigure its network, reduce costs, and improve profitability. This action enables UPS to focus on more profitable customers and services, leading to margin expansion.
- UPS expects to expand its U.S. Domestic operating margin in every quarter of 2025, with the full-year operating margin approaching 9%, and aims to achieve a 12% U.S. operating margin by the fourth quarter of 2026. These projections demonstrate UPS's confidence in its strategic initiatives to improve profitability and drive shareholder value.
- Significant Volume Reduction from Largest Customer: UPS is accelerating a significant reduction in volume from its largest customer, reducing their volume by more than 50% by the second half of 2026. This accelerated glide down is 5 times faster than previous efforts, potentially leading to a decline in revenue and challenges in offsetting the lost volume.
- Dependence on a Single Large Customer and Future Uncertainty: There is uncertainty regarding the remaining 50% of the volume from the largest customer, as questions arise about whether this volume may also decrease in future contract renewals. This dependency poses a risk to UPS's revenue stability.
- Potential Earnings Stagnation Despite Margin Improvements: While UPS expects to improve operating margins through cost reductions and efficiency initiatives, there is concern that overall earnings may not grow due to the decline in volume and revenue. The company acknowledged the need to provide more details on earnings growth expectations for 2026, indicating potential stagnation or decline in profit dollars despite higher margins.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +1.5% | Modest revenue growth from $24,917M in Q4 2023 to $25,301M in Q4 2024 reflects slight improvements in both domestic and international segments, even as overall headwinds persist. |
U.S. Domestic Package | +3.9% | Domestic revenue increased from $16,915M to $17,573M due to stronger volume and a favorable customer mix, indicating effective operational adjustments compared to the previous period. |
International Package | +6.9% | International revenue rose from $4,606M to $4,923M, driven by improved pricing strategies and product mix adjustments that bolstered performance in key export markets relative to Q4 2023. |
Supply Chain Solutions | -17.4% | Revenue declined significantly from $3,396M to $2,805M, largely due to a 37% drop in Forwarding (from $1,317M to $826M) combined with an almost 96% decline in “Other” revenue, highlighting strategic shifts or divestitures affecting this segment. |
Operating Income | +18% | Operating income improved from $2,477M to $2,926M as a result of effective cost management and margin expansion, which helped offset the revenue pressures in segments like Supply Chain Solutions. |
Net Income | +7.2% | Net income increased from $1,605M to $1,721M, driven by operating leverage and stronger core profitability despite higher financing costs, reflecting improved overall efficiency. |
Interest Expense | +111% | Interest expense surged from $207M to $436M, primarily due to increased outstanding debt and higher interest rates on floating rate obligations, which sharply impacted financing costs compared to the prior period. |
EPS (Basic) | +7.5% | EPS improved from $1.88 to $2.02 as the enhanced net income translated into better per-share earnings, underscoring the positive influence of operating and cost efficiencies despite other challenges. |
Cash Flow | Turned strongly positive (from –$1,105M to +$257M) | Cash flow turnaround is driven by improved collections and better capital management, including higher proceeds from asset disposals and reduced investing outlays, marking a dramatic shift from the negative cash flow seen in Q4 2023. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue (Consolidated) | FY 2025 | no prior guidance | $89 billion | no prior guidance |
Operating margin (Consolidated) | FY 2025 | no prior guidance | 10.8% | no prior guidance |
Free cash flow | FY 2025 | no prior guidance | $5.7 billion | no prior guidance |
Capital expenditures | FY 2025 | no prior guidance | $3.5 billion | no prior guidance |
Dividends | FY 2025 | no prior guidance | $5.5 billion | no prior guidance |
Share buybacks | FY 2025 | no prior guidance | $1 billion | no prior guidance |
Tax rate | FY 2025 | no prior guidance | 23.5% | no prior guidance |
Revenue (U.S. Domestic) | FY 2025 | no prior guidance | Expected to decline 2.3% YoY | no prior guidance |
Average Daily Volume (U.S. Domestic) | FY 2025 | no prior guidance | Down ~8.5% YoY | no prior guidance |
Revenue per piece growth (U.S. Domestic) | FY 2025 | no prior guidance | ~6% YoY | no prior guidance |
Operating margin (U.S. Domestic) | FY 2025 | no prior guidance | 8.8% | no prior guidance |
Revenue (International) | FY 2025 | no prior guidance | Up ~2.5% YoY | no prior guidance |
Operating margin (International) | FY 2025 | no prior guidance | 18.6% | no prior guidance |
Average Daily Volume (International) | FY 2025 | no prior guidance | Mid-single-digit growth | no prior guidance |
Revenue (Supply Chain Solutions) | FY 2025 | no prior guidance | ~$11 billion | no prior guidance |
Operating margin (Supply Chain Solutions) | FY 2025 | no prior guidance | 8.5% | no prior guidance |
Total expense (Below-the-line) | FY 2025 | no prior guidance | ~$780 million | no prior guidance |
Pension expense | FY 2025 | no prior guidance | ~$37 million | no prior guidance |
Revenue (U.S. Domestic) | Q1 2025 | no prior guidance | Up ~1% YoY | no prior guidance |
Operating margin (U.S. Domestic) | Q1 2025 | no prior guidance | Expand by ~140 bps YoY | no prior guidance |
Revenue (International) | Q1 2025 | no prior guidance | Flattish YoY | no prior guidance |
Operating margin (International) | Q1 2025 | no prior guidance | Moderately down YoY | no prior guidance |
Revenue (Supply Chain Solutions) | Q1 2025 | no prior guidance | Decline by ~$500 million YoY | no prior guidance |
Operating margin (Supply Chain Solutions) | Q1 2025 | no prior guidance | Low to mid-single digits | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Consistent focus on cost reduction and margin expansion | Consistent emphasis in Q1, Q2, and Q3 calls (e.g., Fit to Serve, Network of the Future). Ranged from 5.9% to 10% in U.S. Domestic and up to 20+% in International, with various cost reduction targets. | Highlighted ongoing initiatives, including 49 operational closures and 3 million fewer hours vs. prior year. Emphasis on “Efficiency Reimagined” for additional savings. U.S. Domestic margin at 10.1% and International at 21.6% in Q4. | Continues across all periods |
Accelerated volume reduction from the largest customer | First cited in Q3 (largest customer responsible for 100% of decline in air volume). No mentions in Q2 or Q1. | Reiterated agreement to reduce Amazon volume by 50% by second half of 2026. Aimed at raising yields and margins. | Continued from Q3 to Q4; not mentioned in Q2/Q1 |
Healthcare growth targets (to $20B by 2026) | No $20B target in Q3 or Q2. In Q1, UPS aimed to be #1 in complex healthcare logistics and opened LabPort but did not reference $20B. | Newly highlighted target to double healthcare revenue to $20B by 2026. Segments: complex logistics, clinical logistics, and non-complex logistics. | Newly introduced in Q4 |
SMB and B2B segments | Q3: SMB commercial grew 3.8%, B2B up nearly 1%. Q2: SMB at 29.7% of volume, B2B down 4.6% but expected rebound. Q1: SMB at 29% penetration, B2B near 42%. | SMB volume reached 27.8% of total U.S. volume with 4.5% growth in Q4. Mixed B2B performance but gains in healthcare. | Ongoing discussion, consistent growth emphasis |
Revenue per piece (RPP) focus | Significant focus in Q1, Q2, and Q3 (managing mix shifts, surcharges, and base rates). RPP often mentioned as key to revenue quality. | Not explicitly referenced as a core theme in Q4, though RPP improved by 2.4% year-over-year. | Mentioned in Q1–Q3, less emphasis in Q4 |
International segment sentiment shift | In Q3, strong performance and margin expansion (18%) following Q1 challenges. Q2 noted sequential export improvements, Q1 faced macro pressure. | No direct Q4 update about shifting from prior pressure. | Positive rebound noted by Q3; no new Q4 commentary |
‘Better not bigger’ strategy | Emphasized in Q2 as prioritizing profitable volume over size. Briefly cited in Q3 referencing portfolio optimization. Not explicitly mentioned in Q1. | Brief retrospective mention but overshadowed by newer initiatives (“Efficiency Reimagined”). No major Q4 emphasis. | De-emphasized recently |
Acquisition of Estafeta in Mexico | Discussed solely in Q2 as part of near-shoring strategy. Expected to close by end of 2024, no further updates in Q3 or Q1. | Not mentioned in Q4. | Only referenced in Q2; no further updates |
Emerging concern in Q4 about potential earnings stagnation | Not raised in Q3, Q2, or Q1. Less discussion on long-term earnings trajectory before Q4. | Addressed by executives who promised more 2026 guidance, stressing profit dollar growth alongside margins. Emphasized cost-out initiatives and network reconfiguration. | New concern introduced in Q4 |
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Amazon Volume Reduction
Q: How will the Amazon volume reduction impact margins?
A: UPS is accelerating the glide down of Amazon volumes by more than 50% by June 2026. Amazon is the largest customer but very dilutive to U.S. Domestic margins. As volumes decrease, UPS will remove fixed costs by reconfiguring the network, closing facilities, and adjusting assets, leading to margin expansion. -
Margin and Earnings Outlook
Q: Can you grow margins and earnings in 2025 and 2026?
A: Yes, UPS expects to expand domestic operating margin every quarter in 2025, ending at 10.8%, an increase of 130 basis points over last year. Profit dollars will grow, not just margins, with further acceleration in 2026 as cost reductions continue ,. -
Future Growth Without Amazon
Q: How will you grow without Amazon volume?
A: UPS plans to take market share in a slow-growing small package market excluding Amazon, focusing on SMBs, increasing SMB revenue from 29% to 32% in 2025. They are expanding in healthcare, aiming to grow healthcare revenue to $20 billion by 2026. Opportunities also exist in international diversification and complex logistics. -
Pricing Discipline Amid Volume Drop
Q: Will you maintain pricing discipline despite lower volumes?
A: Yes, UPS is not chasing volume to fill capacity; they are adjusting capacity to match new volume levels. They will continue strong pricing discipline, expecting revenue per piece growth of 6% in 2025 ,. -
Network Reconfiguration and Cost Reduction
Q: How will you adjust the network to lower volumes?
A: UPS will reconfigure the network by reducing fixed assets like buildings, vehicles, and aircraft. They've already closed 5 facilities in January and plan to have 140 active projects, with 61 going live this year. This aligns the fixed cost base to new volume levels. -
SurePost Insourcing Impact
Q: What is the impact of insourcing SurePost volumes?
A: UPS insourced 100% of SurePost volumes previously delivered by USPS due to USPS increasing costs and potential service deterioration. The transition has gone well, with no material impact on the business; they have more delivery stops per car but aren't driving more miles. -
Risk of Losing Remaining Amazon Business
Q: Will the rest of Amazon business disappear?
A: UPS doesn't expect the remaining Amazon business to go away. They will continue to provide services where there is mutual benefit, such as returns through 5,200 UPS Store locations ,. Amazon will remain a customer after the volume reduction. -
Capital Allocation and Share Repurchases
Q: Is it prudent to repurchase shares given high payout ratio?
A: UPS has strong liquidity and plans to repurchase $1 billion in shares, mainly to offset dilution from compensation plans. Despite a high payout ratio due to non-cash pension expenses, they have sufficient cash flow to support dividends and buybacks. -
Returns Business and Competition
Q: Is there a risk to your returns business from Amazon?
A: UPS continues to see growth in returns through UPS Store, with a strong footprint of 5,200 stores. They've added digital options like Happy Returns, offering best-in-class solutions. While Amazon is trialing in-house returns, UPS believes their service and convenience will retain customers. -
Peak Season Operations Without Amazon
Q: How will peak season be affected without Amazon volume?
A: UPS will operate peak season as usual but won't need as many leased assets. Variable costs like renting equipment, aircraft, and temporary facilities will be reduced, improving efficiency.