News / UPS Mexico takeover overshadowed by poor Q2 results

Photo: UPS

UPS is taking over its partner in Mexico, pointing to strong potential in nearshoring and cross-border flows. However, the news could not compensate for disappointing Q2 results, which sent UPS stock down sharply.

Estafeta, a privately owned logistics integrator offering parcel, logistics and supply chain solutions on a domestic network of 145 facilities and over 750,000 sq metres of infrastructure serving 95% of the nation’s population, also runs an air network of four B737-400 freighters flying between 12 Mexican airports and Miami.

The pair have had a commercial agreement since 2020. Details of the deal were not disclosed, leaving observers to speculate in how far the acquisition brings the two organisations and their networks closer together.

“It probably makes sense for them, but we don’t know how far this changes the structure and partnership. How much of the business Estafeta has is already UPS business and how much is incremental?” reflected John Haber, chief strategy officer of Transportation Insight.

The deal was described as “an evolution of their commercial agreement”.

UPS CEO Carol Tomé said: “Global supply chains are shifting, Mexico’s role in global trade is growing, and Mexican SMB and manufacturing sectors are looking for reliable access to the US market.

“There is no better way to capitalise on these trends than by combining the size and scale of UPS with Estafeta. As the shift to nearshoring continues, our combined business will give customers in Mexico unprecedented access to global markets with seamless service and greater efficiency.”

The pair expect the transaction to be completed by the end of the year.

However, news of the acquisition was overshadowed by UPS’s results for the second quarter, which saw revenues and profit contract, and pushed management to scale back its guidance for the year.

Revenues slipped 1.1%, to $21.82bn, and net income dropped from $2.08bn a year ago to $1.41bn. Consolidated operating profit was down 30.1%, to $1.9bn.

International revenue sank 1%, owing to a 2.9% decrease in average daily volume. Revenues from US operations slipped 1.9%, which management attributed largely to its product mix. Both Ms Tomé and CFO Brian Dykes said in the earnings call that customers had traded down to “more economical products”.

Management scaled back the guidance for the full year from $94.5bn to about $93bn.

On a positive note, Ms Tomé pointed out that volume had expanded for the first time since 2022, ending a string of nine quarters of declines, but the announcement failed to garner much attention.

“It’s likely residential volume, not the profitable stuff,” commented Mr Haber. He added that at this point shippers had the upper hand and many have been renegotiating contracts – possibly with an element of hitting back after being steamrollered by UPS’s relentless rate and surcharge increases since the pandemic, when shippers were scrambling for capacity.

And shareholders were not impressed: the share price fell 12% after the results were published.