News / Optimistic UPS chief sees end of decline after 'disappointing' Q1

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UPS fell behind expectations in the first quarter of 2023. Management sees signs of the decline coming to an end, but challenges remain: first, it needs a deal with the Teamsters.

The integrator’s results for the first quarter disappointed, falling behind management’s projections from January. Revenue was down 6% from a year ago, to $22.9bn, and consolidated operating profit slumped 21.8% to $2.5bn (see more in-depth analysis at Loadstar Premium today)

UPS CEO Carol Tomé pointed to “a challenging macroeconomic environment”, both in the B2C and B2B segments, which resulted in a 3% decline in volumes, as opposed to a 1% drop management had projected back in January.

Volumes shrank both in the US domestic and international segments, falling 5.4% and 6.2%, respectively. Revenues declined 0.7% domestically and 6.7% internationally, with operating profit down 12.9% and 32.7%, respectively.

The UPS Supply Chain Solutions arm fared even worse, with revenue down 22.5% and operating profit slumping 46.4%, which management attributed to softer demand, especially out of Asia.

“Certain non-US markets remain challenged,” said Ms Tomé, adding that the international macroeconomic environment would remain bumpy.

On a brighter note, she pointed out that traffic in the China-US lane had been down 20%, but was showing signs of improvement as Chinese exports picked up.

She also pointed to a recent improvement in demand. Volumes declined sequentially between January and March, showing year-on-year drops of 3%, 5% and 7% respectively, but they stabilised in April, she said.

While this suggests an improvement in the market, UPS remains cautious in its projections for the year, which are at the low end of its forecast range from January. Revenues are expected to reach about $97bn, with domestic and international volumes contracting 3% and 4%, respectively.

Based on input from customers expecting a strengthening of business in the latter half of the year, Ms Tomé expressed confidence that volumes would improve after the summer.

The company is going to make some adjustments, such as reducing international flying in response to a shift to surface modes, but its overall investment strategy remains unchanged, she said.

“While we will control what we can control, we will also stay on strategy. Over the past three years we have fundamentally improved nearly every aspect of our business, and we are just getting started,” she added.

Rick Watson, founder and CEO of e-commerce specialist RW Commerce Consult, contrasted what he called UPS’s ‘let’s not dismantle what we have’ approach with the recent cutbacks at FedEx.

“UPS is still a profitable business and its approach is solid; the company can afford to wait it out,” he said.

At this point the company is hamstrung by its looming contract talks with the Teamsters union, which represents some 330,000 employees, and competitors have taken advantage of the situation and courted its customers. The union leadership, elected after a campaign calling for a more aggressive line, has signalled tough negotiations.

Not surprisingly, Ms Tomé has steadfastly declared that the two sides were not far apart and expressed confidence that a win-win solution could be reached.

And the company is fighting to contain the leakage. It has assigned 127 ‘high-impact’ executives to its major customers to keep them onboard during the negotiations and has campaigned to get clients that are shifting volume to other carriers to commit to reverting to UPS once a deal with the union has been reached.

“We have a pipeline greater than $6bn that’s hard to sell into, right now, because of the Teamsters negotiation, but we’re going to go hard at it once we have that handshake,” Ms Tomé said.

The market appears not entirely convinced – UPS shares slid nearly 10% in midday trading after the earnings call.