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UPS delivered investors a mixed bag in Q2, reporting volume growth but shrinking revenue.
It was “a significant turning point” for UPS, the “first time in nine quarters” the package delivery giant saw improved volumes in the US, CEO Carol Tomé said during an earnings call this week. The not-so-good news was that consolidated revenues declined 1.1% YoY to $21.8 billion and operating profit decreased 30.1% to $1.9 billion compared to Q2 2023.
The dip in revenue and operating profit reflects an expected “bathtub effect” in the company’s financial performance, Tomé noted, due to new labor contracts kicking in. Q2 was the last full quarter impacted by “the high wage growth rate” from the new Teamsters contract, CFO Brian Dykes said. Dykes is the new finance chief of UPS after its former CFO, Brian Newman, departed in June, as CFO Brew previously reported.
What UPS didn’t anticipate in its financial forecast was that customers would shift “toward value products” over the last three months, Tomé said. More customers moved their business from air to ground, and from ground to SurePost, an “economy service” for non-urgent or low-value items, according to the company’s website.
“As a result, total air average daily volume was down 7.8%, while ground average daily volume increased 2.3%,” Dykes said during the earnings call. SurePost average daily volume grew 25%, he added.
Investors weren’t happy with the news, even if some of the revenue hit was expected. UPS was the “worst performing stock on the S&P 500” on July 23, when it reported its earnings, according to Seeking Alpha.