UPS reported lower-than-expected earnings in the second quarter, lowered its full-year revenue guidance, and experienced a sharp drop of over 13% during trading hours | Financial Report Insights

UPS shares plunged by over 13.3% intraday, poised to mark the largest single-day decline in fifteen years, as both second-quarter revenue and adjusted earnings per share fell short of expectations, leading to a downward revision of the 2024 revenue outlook. The Chief Financial Officer of UPS stated that the number of job cuts has reached 11,500, with a target of 12,000.

On Tuesday, July 23, before the U.S. stock market opened, UPS released its second-quarter financial report for the period ending June 30, 2024.

1) Key Financial Data

Revenue: Q2 revenue was $21.8 billion, a 1% year-on-year decrease, below the expected $22.18 billion;

Net Profit: Q2 net profit attributable to shareholders was $1.41 billion, down by 32.2% year-on-year;

Earnings Per Share: Q2 adjusted earnings per share were $1.79, lower than the expected $1.99.

Operating Profit: Q2 operating profit was $1.94 billion, a 30.2% year-on-year decrease.

2) Outlook

Revenue: Revised the 2024 fiscal year revenue to around $93 billion, previously estimated at $92-94.5 billion.

Capital Expenditure: Estimated capital expenditure for this year is around $4 billion, previously estimated at $4.5 billion, with the market estimating $4.56 billion.

3) Shareholder Returns

UPS has restarted its stock repurchase program, targeting $1 billion annually. The stock repurchase target for 2024 is $500 million.

Following the financial report announcement, the pre-market stock price fell by over 5%, with U.S. stocks extending the decline by over 13.3% in early trading.

Decline in Domestic and International Business

UPS explicitly stated that its latest performance guidance does not account for the impact of selling its trucking business Coyote Logistics to RXO Logistics. The company revealed in a previous press release that it expects this transaction to be completed by the end of the current year.

Furthermore, UPS recently announced an acquisition agreement with Mexican courier company Estafeta, marking a further expansion in the international market.

UPS CEO Carol Tomé stated in the company's financial report:

"This quarter marks an important turning point for our company as we see volume growth return in the U.S. for the first time in nine quarters. As expected, operating profit for the first half of 2024 was down from last year, but looking ahead, we expect operating profit to resume growth."

The company's revenue decreased from $22.06 billion in the same period last year to $21.82 billion, mainly due to declines in its domestic and international businesses By region, the company's revenue from its U.S. operations decreased by 1.9%, which the company attributed mainly to changes in product structure. International business revenue decreased by 1%, with UPS attributing this to a 2.9% decrease in daily business volume.

The company's third segment - Supply Chain Solutions - saw a 2.6% increase in revenue compared to the same period last year, primarily driven by growth in logistics business including healthcare.

In terms of industry, at the time of the report's release, soft freight demand and weak shipping prices have led to what some call a global freight recession. Investors are looking at UPS's earnings to gauge whether demand is improving.

UPS recently won an air transport contract with the United States Postal Service (USPS) from its competitor FedEx. Starting from September 30th, after FedEx's existing contract expires, UPS will become the primary air cargo provider for USPS.

Although financial details of the deal were not disclosed earlier, UPS referred to the contract as "significant" in an April press release. The company stated that the deal will bring $1.75 billion in revenue to FedEx in the 2023 fiscal year