The Future of United Parcel Service: Earnings Report and Long-Term Outlook

Key Takeaways

• United Parcel Service is scheduled to report earnings ahead of market open Tuesday.
• The report comes just weeks after UPS announced a deal to become the primary air cargo provider of USPS.
• Analysts expect key metrics like revenue and income to drop compared to the first quarter of 2023, as UPS and FedEx have worked to manage the decline in demand since hitting record levels during the pandemic.

United Parcel Service (UPS) reports earnings before the bell Tuesday, with analysts projecting year-over-year drops in revenue and income as UPS and FedEx (FDX) have seen demand fall after hitting record highs during the pandemic.

The shipping giant has also seen its margins hit by the implementation of the contract it reached last summer to avoid a strike of 330,000 UPS employees, and the company has also introduced cost-cutting efforts as it copes with the lower demand.

Bank of America analysts said in a recent note that UPS focused on cost-cutting efforts during an analyst event that took place last month. The company highlighted its plan to cut $3 billion in costs with changes to its business model including more automation in its warehouses, and another $1 billion in cuts that would be achieved through layoffs of about 12,000 employees in management roles.

“By 2028, UPS aims to more than triple its buildings with automation,” the analysts noted. “It targets 400 automated buildings in the US, with the vast majority to be completed in existing buildings, and of which 10 will be new buildings. It aims to close 200 operational facilities by 2028, and targets to close 40 sorts in 2024 (after closing 30 sorts in 2023). Cost savings will stem from fewer feeder runs.”

Key Metric: Average Daily Volume

The package shipping industry at large has suffered in the last year as demand cooled after reaching record highs during the pandemic. Parcel shipping volume rose 0.5% in 2023 compared to the year prior, but total revenue among the major carriers fell for the first time in seven years, according to an annual report on the industry from Pitney Bowes (PBI) released Wednesday.

Of the major carriers of USPS, FedEx, UPS, and Amazon (AMZN), Amazon was the only one to see an increase in shipping volume last year, the report found. Like FedEx, UPS has seen declines in average daily volume since the record highs it reported during the pandemic.

Amazon was reported to have surpassed UPS and FedEx in total deliveries last year, delivering the second most packages in the country behind only the postal service. However, the Pitney Bowes report indicates that UPS still generates the most revenue from the packages it delivers.

UPS said in its fourth-quarter presentation for fiscal 2023 that average daily volume decreased to 22,449 in the fourth quarter of 2023 from 24,238 packages in the fourth quarter of 2022.

Business Spotlight: Long-Term Outlook

UPS has made a number of announcements in recent weeks that have put more focus on the long-term growth plans of the business, which investors will likely be expecting to hear more about in Tuesday’s earnings call.

Earlier this month, UPS and the United States Postal Service (USPS) announced that UPS would be replacing FedEx as the primary air cargo provider of the postal service once the current contract expires in September. USPS said it negotiated with FedEx through late March, but couldn’t come to a deal, leading it to decide to transition to UPS once the FedEx deal expires.

Just days before the USPS announcement, UPS released future revenue projections above what analysts were expecting, with fiscal 2026 revenue projected between $108 billion to $114 billion, compared to the range of $92 billion to $94.5 billion it projects for the current fiscal year.

UPS shares have lost over 9% of their value so far this year, with shares trading at $142.81 as of about 12:30 p.m. ET Friday.

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