The inverter adapts to a modified macro environment
UPS Inc.’s two-year transformation, summed up by CEO Carol B. Tomé in her now familiar “better, not bigger” mantra, has taken place in an environment of ever-increasing volumes. The mantra has not changed, but the environment has changed.
The Atlanta-based transportation and logistics giant (NYSE: UPS) released first-quarter results on Tuesday that gave insight into the company’s ability to manage an uncertain macroeconomic outlook that led to the first period of weaker-than-expected demand since Tomé took over in June 2020. Revenue increased 6.4% year-on-year to $24.4 billion. Adjusted operating profit rose 12.1% to $3.3 billion, while operating margin increased to 13.6%, 70 basis points higher than a year ago.
All three business segments increased their operating profits, with the smallest of the three, Supply Chain Solutions, posting an operating profit of $481 million and an operating margin of 11%, two records for the unit, propelled by the strength of freight forwarding and its health care services. .
Adjusted diluted earnings per share came in at $3.05, well above the median estimate of $2.87 per share among analysts polled by Barchart. Still, shares fell 3.5% amid strong selling in US equities.
UPS reaffirmed its financial targets for 2022 and announced that it would double its share buyback program to $2 billion.
The findings came amid a slowdown in demand for the company’s U.S. and international parcel services, the latter of which was something UPS hadn’t anticipated. Average daily volume in the United States fell 3% year-over-year, under pressure from a difficult comparison with the results of 2021, when government stimulus measures spurred an explosion in spending on consumption.
Residential shipment volumes fell 7.4% year-over-year as weaker stimulus, higher food and fuel prices and inflation uncertainty prompted consumers to limit their spending. The decline was partially offset by a 3.6% year-over-year increase in business-to-business demand. At the end of the quarter, B2B represented 43% of volumes in the United States, compared to 40% the previous year.
Domestic revenue per piece increased 9.5%, more than offsetting lower volumes. Increases in base fares and fuel surcharges contributed more than 80% of the improvement, UPS said.
International volumes were impacted by pandemic-related lockdowns in Asia and, to a lesser extent, Russia’s invasion of Ukraine on February 24; Russia, Ukraine and Belarus combined accounted for just 1% of total UPS revenue in 2021. During the quarter, average daily international volume fell 6.7%, intra-country volumes down 10.1% year-on-year. The total average daily export volume decreased by 2.9% due to, among other things, containment measures in Asia. Average daily volume from the United States to Europe increased by 10.7%
International revenue increased 5.8% to $4.9 billion. Revenue per piece increased by 10.5%. Operating profit rose 2.7% to $1.1 billion, while operating margin fell 70 basis points to 23%.
In an ongoing seller’s market for package delivery services, UPS can remain selective about the business it accepts while building strong margins. Company executives said they were under no pressure globally to lower their prices.
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