UPS Cuts Revenue Guidance as Customers ‘Trade Down’ on Shipping Services
UPS saw an uptick in U.S. volume for the first time since the fourth quarter of 2021 in a sign that freight demand may finally be on the upswing. But the logistics giant cut its revenue guidance and operating margin target for the full year, sending the company’s stock down more than 13 percent in trading on Tuesday.
The Atlanta-based company generated consolidated revenues of $21.8 billion in its second quarter, a 1.1 percent decrease from the year-ago period on net income to $1.4 billion. The profits fell by a much wider margin, as UPS reported a 32 percent drop from $2.1 billion the same time last year. Earnings totaled $1.79 per share.
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The figures came in below Wall Street estimates of $22.2 billion and earnings per share of $1.99.
Pressures remain at the business as U.S. customers traded down in the UPS offerings they selected, opting for less profitable transportation options. As a result, average daily volume was down 7.8 percent by air, while this number increased 2.3 percent by ground. SurePost, the company’s economy service for low-value, residential shipments, saw average daily volume grow 25 percent.
UPS CEO Carol Tomé indicated that e-commerce purchases have driven much of the overall volume growth, with some new clients bringing in volume that was “certainly more than we anticipated, flowing into our network.”
“There were two new e-commerce customers that came into our network, and you can imagine who they are,” said Tomé in the call. “These are new e commerce shippers in the United States whose volume has been explosive, we are working through the relationships as we speak.”
Tomé did not reveal which companies were the e-commerce customers that have been escalating volume, but it could be speculated that they are Shein and Temu. A recent analyst note by Wells Fargo predicted that Temu and Shein were accounting for “substantial global small package volume growth” into the U.S.
In total, domestic operations revenue declined 1.9 percent. The international segment saw a 1 percent decline in revenue, which UPS attributes to a 2.9 percent decrease in average daily volume.
The company also is still enduring compressed margins from labor costs due to the Teamsters contract signed last year, in which 46 percent of the total cost increase came in the first year. The pressures from this deal should ease up for the remainder of the year, as this was the last full quarter of the high wage growth rate associated with the first year of the new contract.