Speaking whilst presenting UPS third quarter results, Carol Tome CEO commented “we said that the second quarter would not only be the bottom, but a turning point for our performance, and that we would return to revenue and profit growth in the third quarter, which we did.” The numbers do portray a revival of business.
At the core US Express, business volumes increased noticeably, with ‘average daily volume’ up by 6.5% year-on-year. UPS said that this was the highest increase in volumes in three years. Confusingly, the company said that growth from the ‘Business-to-Business’ segment of the market had declined as a proportion of ‘average daily volume’, which implies that ‘Business-to-Consumer’ had increased, although UPS did not assert this. Demand for cheaper ‘Ground’ services has grown possibly at the expense of more expensive services, leading to ‘revenue per piece’ falling by 2.2%. What really had an impact was cost control. This led to a 4.1% fall in ‘cost-per-piece’, which in turn resulted in a 46.5% jump in ‘adjusted’ operating profits.
That said, the ‘International Express’ business saw virtually no volume growth, with ‘average-daily-volume’ falling by 0.6%. Yet in contrast to the US Domestic business, rates were firm resulting in a 2.5% rise in revenue-per-piece and a 17.3% increase in ‘adjusted’ operating profits.
More surprising was the fall in profits at ‘Supply Chain Services’. This was attributed by UPS to the freight brokerage, Cayote, the sale of which was completed in September. Apparently, the freight forwarding operations did quite well with revenue up 15.1% “driven by market demand out of Asia” and the contract logistics business increased with the acquisition of the pharma logistics business MNX. The gain of the United States Postal Service airfreight contract also benefitted the business.
Overall, UPS saw revenue for the third quarter of 2024 increase by 5.6% year-on-year to US$22.2bn whilst ‘adjusted’ operating profit was up 22.8% at $1.9bn. Operating margin moved upward from 7.7% in Q3 2023, to 8.9% in Q3 2024. Whilst these numbers are clearly going in the right direction, it should not be immediately assumed that the market is entirely benign for UPS. There still is a preference for lower-cost services in the US express market and UPS is relying on effective cost management for much of its profit increase. The company said that in the fourth quarter of 2024, revenue growth in US Domestic Express was expected to be in the region of 1.5%, although other parts of the business would grow faster.
Source: Ti Insight
Author: Thomas Cullen
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