UPS's stock has its worst day ever after earnings miss, as package volume fell

By Tomi Kilgore

Shift in customer preferences toward cheaper shipping options and high union wage rates weighed on results

Shares of United Parcel Service Inc. took a historic dive Tuesday, after the package delivery giant missed second-quarter earnings expectations, and lowered its

"During the quarter, we experienced a shift toward value products with shippers choosing ground over air, and SurePost over ground," CEO Carol Tomé said on the post-earnings call with analysts, according to a FactSet transcript.

SurePost is UPS's economy service for "non-urgent" business-to-consumer shipments, in collaboration with the U.S. Postal Service.

On a bright note, Tomé noted that the quarter marked a "significant turning point," as U.S. volume increased for the first time in nine quarters.

She also noted that the quarter marked the last full quarter of the high wage growth rate - union wages rates were up 11.7% - resulting from the new Teamsters contract.

The stock (UPS) plunged 12.1% to $127.68, the lowest close since July 29, 2020. That broke the previous record for a one-day decline, which was the 10.3% selloff on July 25, 2006. UPS had gone public in November 1999.

Net income fell to $1.41 billion, or $1.65 a share, from $2.08 billion, or $2.42 a share, in the same period a year ago.

Excluding nonrecurring items, such as a one-time regulatory matter, adjusted earnings per share dropped to $1.79 from $2.54 to miss the FactSet consensus of $1.99.

Revenue was down 1.1% to $21.82 billion, below the FactSet consensus of $22.17 billion.

Consolidated volume increased 0.1% to 1.339 billion pieces.

In the U.S. domestic package segment, revenue declined 1.9% to $14.12 billion from $14.40 billion, to miss expectations for a rise to $14.54 billion, as revenue per piece fell 2.6%.

New Chief Financial Officer Brian Dikes broke down the decline in revenue per piece. Base rates increased RPP by 0.90 percentage points, while the combination of product mix, lighter weights and shorter delivery zones decreased RPP by 3.1 percentage points.

Dikes said the rest of the decline was due to customer mix and fuel costs.

Meanwhile, average daily package volume rose 0.7% to 17.86 million pieces, as a 2.3% increase in ground volume offset a 7.1% decline in next day air and an 8.8% drop in deferred volume.

International revenue fell 1% to $4.37 billion, amid a 2.9% decrease in average daily export volume, while supply chain revenue increased 2.6% to $3.33 billion due to growth in logistics.

Looking ahead, the company now expects 2024 revenue of approximately $93 billion, compared with its previous full-year guidance range of $92.0 billion to $94.5 billion, which would put the midpoint of that range at $93.25 billion.

And the outlook for adjusted operating margin was cut to approximately 9.4% from 10% to 10.6%.

Evercore ISI analyst Jonathan Chappell reiterated his in line rating citing the "sizable miss" in expectations for the quarter.

"We had anticipated a modest miss for 2Q, but feared either a lowered guide or a bridge too far to meet the prior guide, but the magnitude of the 2Q miss coupled with the large downward revision to the full-year adjusted operating margin guide will surprise even the biggest bears," Chappell wrote in a note to clients.

He cut his 2024 EPS estimate $7.56 from $7.90, which compares with the current FactSet consensus of $8.11. Chappell also lowered his stock price target to $138 from $145.

UPS's stock has now tumbled 18.8% year to date, while the Dow Jones Transportation Average DJT has slipped 1.5% and the S&P 500 index SPX has rallied 16.5%.

-Tomi Kilgore

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07-23-24 1705ET

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