UPS Q3 2023 Revenue & Profit Declines Continue Accelerating: But It’s Complicated
You know that cartoon when the train goes off the tracks and starts picking up more steam headed downhill? That is a good visual for the accelerating decline of UPS at the moment.
UPS thought Q3 was going to be bad; it was. And it lowered full-year 2023 guidance.
US Overall Q3 2023 Highlights:
Revenue declined 12.7% y/y to $21.1 billion, compared to $24.2 billion last year.
(accelerating decline from 6.9% in Q2 and Q3)
Consolidated Operating profits declined 56.9% to $1.3 billion.
(last time this was half due to volume, and half due to wages)
US Domestic Q3 2023 Highlights:
Revenues declined 11% from $15.4B to $13.7B (accelerated decline from 6.9% in Q2 y/y and 0.9% y/y Q1)
Operating profit declined 66% from $1.7B to $571M
I have 3 buckets: WTF, Bad, and Good here.
WTF:
Top 100 UPS customers make up 86% of their 4Q volume. Hadn’t heard this number before, and they are talking to all these customers.
Who knows what the consumer will do. 4% to 12% holiday sales increase range. Despite the fact that UPS says they have good visibility into their top customers? 🤷
Top 20 customers seeing retail same store decline, and eCommerce sales decline more as spend shifts from good to services. Seems more about UPS customer base mix, not necessarily eCommerce as a whole.
On top of that, they say volumes are recovering? The message is off. Where are we seeing ecommerce volume declining faster than retail? Nowhere this year I have seen.
GOOD:
UPS claims 46% of Teamsters contract costs are in first year. On a 5 year agreement.
Quote of the Day, UPS CEO described returns business as “growthy”. I should start using that.
Happy Returns should be a great acquisition. It costs merchants $33/unit to process a return - 20-30% of eCom packages returned - and now consumers can drop off with no label/no box, improving UPS delivery density. Will be available at 12k locations in the US, including 5,200 UPS stores.
Opened 7 dedicated healthcare facilities this year, which should be a growing, high-margin market.
BAD:
UPS revealed that package diversion was not 1M as they previously reported, but was 1.5M, but that win back has been 600k on that number already, and accelerating week/week. 50% of that winback has been from FedEx.
Some customers waited for Teamsters agreement to come back. The company had higher labor costs, and ramped hiring sooner for peak, also increasing expenses.
Ocean volume huge over-capacity (hello Maersk, Flexport), causing pressure on prices.
Freight brokerage demand falling (hello Convoy)
Seeing demand softness from customers that did not divert volume. This is not a great sign.
Full Year 2023 Guidance lowered to a midpoint of $91.7B.
Recall, the company had guided between $97 billion and $99.4 billion. Last quarter, the company lowered guidance to $93 billion. So, trends are not great.
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