10-QPeriod: Q3 FY2023

UNITED PARCEL SERVICE INC Quarterly Report for Q3 Ended Sep 30, 2023

Filed November 1, 2023For Securities:UPS

Summary

United Parcel Service (UPS) reported a challenging third quarter of 2023, with revenue declining 12.8% year-over-year to $21.1 billion. This decline was primarily driven by lower package volumes across all segments (U.S. Domestic, International, and Supply Chain Solutions), impacted by macroeconomic headwinds such as inflation and geopolitical tensions, as well as labor negotiations with the Teamsters. Operating profit saw a significant decrease of 56.9% to $1.3 billion, leading to diluted earnings per share of $1.31, down from $2.96 in the prior year period. Despite the revenue and profit pressures, UPS demonstrated some cost management, with total operating expenses decreasing by 6.3%. The company also made strategic moves, including agreements to acquire MNX Global Logistics and Happy Returns, aimed at enhancing its capabilities in time-critical and returns logistics, respectively. The successful ratification of the new national master agreement with the Teamsters in September provides greater labor certainty for the next five years, with planned wage and benefit increases. The company maintained a disciplined approach to capital allocation, returning cash to shareholders through dividends and share repurchases, while also investing in technology and network improvements.

Financial Highlights

52 data points
Beta

Revenue

$21.06B

Net Income

$1.13B

5.4% Net Margin

EPS (Diluted)

$1.31

Total Assets

$70.28B

Cash & Equivalents

$4.31B

Free Cash Flow

$944.00M

Financial Statements
Beta
Revenue$21.06B
Operating Expenses$19.72B
Operating Income$1.34B
Interest Expense$199.00M
Net Income$1.13B
EPS (Basic)$1.31
EPS (Diluted)$1.31
Shares Outstanding (Basic)857.00M
Shares Outstanding (Diluted)858.00M

Key Highlights

  • 1Revenue decreased by 12.8% to $21.1 billion in Q3 2023, primarily due to a 11.5% drop in U.S. Domestic Package volume and a 6.6% decline in International Package volume.
  • 2Operating profit significantly declined by 56.9% to $1.3 billion, and operating margin compressed to 6.4% from 12.9% in the prior year quarter.
  • 3Diluted Earnings Per Share (EPS) fell to $1.31 from $2.96 year-over-year, reflecting the lower profitability.
  • 4Total operating expenses decreased by 6.3% to $19.7 billion, aided by reductions in purchased transportation and fuel costs.
  • 5The company completed the ratification of a new national master agreement with the Teamsters, providing labor stability for the next five years.
  • 6UPS announced agreements to acquire MNX Global Logistics and Happy Returns, signaling strategic investments in specialized logistics and returns services.
  • 7Despite volume challenges, average revenue per piece increased across key segments, with U.S. Domestic Package revenue per piece up 2.0% and International Package revenue per piece down 1.4% (largely due to surcharges).

Frequently Asked Questions

The primary drivers of the revenue decline were a significant decrease in average daily package volume across all segments (U.S. Domestic, International, and Supply Chain Solutions) and a reduction in fuel surcharge revenue. Macroeconomic headwinds, including inflation and geopolitical tensions, along with the impact of labor negotiations with the Teamsters, negatively affected consumer and business demand.

The new national master agreement with the Teamsters, ratified in September 2023, is expected to increase union costs at a 3.3% compounded annual growth rate over its five-year term, with most of the increase in the first and fifth years. While this increases labor costs, it provides significant labor certainty, and the contract allows for technology implementation to drive productivity, which is expected to help offset cost increases. The contract ratification also led to a one-time compensation payment to non-union part-time supervisors.

UPS anticipates that macroeconomic headwinds will continue to impact the business in the fourth quarter, though they have experienced week-over-week U.S. volume growth since the Teamsters contract ratification. They expect average daily volume to decline year-over-year in Q4 but increase sequentially from Q3. Revenue per piece growth is expected to improve, driven by base rate increases and pricing actions, while fuel surcharge revenue is expected to continue decreasing year-over-year. Cost per piece growth is expected to moderate.

UPS announced agreements to acquire MNX Global Logistics and Happy Returns. MNX Global Logistics is a provider of time-critical and temperature-sensitive logistics, which will enhance UPS's capabilities in this specialized area, particularly within healthcare. Happy Returns provides end-to-end returns services, which will expand UPS's returns portfolio and offer consolidated solutions for retail customers.