UPS had a successful peak season with operating profit up 18.1% y-o-y to $2.9bn on revenues that grew 1.5% to $25.3bn. The full year results betrayed bumps in the road earlier in 2024, with revenues up 0.1% y-o-y to $91,070m and operating profit down 9.9% to $8,894m.
Chief Executive Carol Tomé summed up the year by saying, “We are making business and operational changes that, along with the foundational changes we’ve already made, will put us further down the path to becoming a more profitable, agile and differentiated UPS that is growing in the best parts of the market”.
Those growth areas appear to include:
– Growth in UPS Supply Chain Solutions Logistics sub-segment revenue by 8.6% y-o-y in the full year to $6,437m. Logistics is less exposed to cyclical macroeconomic conditions than UPS’s other areas
– Revenue per piece in its Next Day Air domestic package product of 4.8% y-o-y to $23.23 in the full year, a higher value domestic package product
– The International Domestic package product revenue per package was up 4.1% y-o-y in the full year to $8.10, reflecting the company weathering the storm of international discounters hitting profits in the first two quarters
Coyote divestment good for SCS
The divestment of Coyote Logistics in June appeared to both hit revenue but allow for far stronger profitability in the Supply Chain Solutions segment. Overall, SCS reported full year revenues down 1.5% y-o-y to $12.374m but operating profit up 23.6% to $932m. At the time, Tomé said, “As UPS positions itself to become the premium small package provider and logistics partner in the world, the decision to sell our logistics business allows an even greater focus on our core business.”
Strong Q4 performance offset bumps of the year
That core business seems to have seen an immediate benefit from the new focus Tomé referred to. UPS leadership was surprised by the Chinese discounters at the beginning of the year with its international products seeing sharp fall in profitability in the first two quarters. By Q4 however, things seem to have improved across the board. Chief Financial Officer Brian Dykes said, “Our financial performance in the fourth quarter was better than expected due to our focus on revenue quality and excellent cost management.”
In Q4 all segments saw improvements in profitability:
– US Domestic had a 16.1% y-o-y improvement in operating profit to $1,681m on revenues that grew 2.2% to $17,312m
– The International segment had operating profit grow 14.5% y-o-y to $1,019m on revenues that grew 6.9% to $4,923m
– SCS had the strongest operating profit growth of all at 62.6% y-o-y to $226m, though revenues fell 9.1% to $3,066m
Looking forward
UPS is heavily exposed to the US economy with the majority of its income stemming from domestic parcels and logistics. With the changes in political direction for the country and policies that are sure to affect the economy it is not immediately clear how UPS will benefit.
The company’s leadership proved agile when the Chinese discounters issue came about and within two quarters seem to have brought about strong earnings growth, so there is every reason to expect that any domestic economic shocks will be dealt with in a similar way. UPS’s development of its logistics interest – that least prone to short term change – may well provide a balance to any instability facing its other business interests.
Author: Richard Shrubb
Source: Ti Insights
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