United Parcel Service, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited results compared with Q1 2023. UPS operates U.S. Domestic Package, International Package and Supply Chain Solutions businesses.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $21.706 billion | $22.925 billion | Down 5.3% |
| Operating profit | $1.613 billion | $2.541 billion | Down 36.5% |
| Operating margin | 7.4% | 11.1% | Down 3.7 percentage points |
| Net income | $1.113 billion | $1.895 billion | Down 41.3% |
| Diluted EPS | $1.30 | $2.19 | Down 40.6% |
| Operating cash flow | $3.316 billion | $2.357 billion | Up $959 million |
- Adjusted diluted EPS was $1.43, excluding $0.09 per share of transformation and other costs and $0.04 per share of asset impairment charges. These are non-GAAP measures.
- Average daily package volume fell 3.6% and average revenue per piece was nearly flat, down 0.1%. UPS attributed the revenue decline mainly to lower volume and one fewer operating day.
- U.S. Domestic Package revenue declined 5.0% and operating profit fell 43.7% to $825 million. International Package revenue declined 6.3% and operating profit fell 20.8% to $656 million. Supply Chain Solutions revenue declined 5.3% and operating profit fell 46.6% to $132 million.
- Operating expenses decreased 1.4% to $20.093 billion, as lower purchased transportation and fuel costs were partly offset by higher union compensation and benefits, depreciation and amortization.
- Cash, cash equivalents and marketable securities totaled approximately $4.5 billion at March 31. Total debt was $20.013 billion, including $1.164 billion of current maturities. No commercial paper or revolving-credit borrowings were outstanding; $3.0 billion of revolving facilities were available.
- Capital expenditures were $1.035 billion. Cash dividends paid were $1.348 billion; UPS made no share repurchases during the quarter. Cash from operating activities benefited from substantially lower pension and postretirement contributions than in Q1 2023.
Material changes and management commentary
- Operating profit and margins weakened as revenue declines outpaced expense reductions. Management cited soft demand, weak industrial production, inflationary pressure and volume declines across global small-package operations; forwarding also faced weak demand and market overcapacity.
- U.S. union wage and benefit costs rose under the Teamsters contract. Management expects wage growth to remain elevated year over year in Q2 and moderate in the second half.
- Logistics revenue grew 9.4%, supported by healthcare growth and the MNX acquisition; this partly offset declines in forwarding and other Supply Chain Solutions businesses.
- UPS announced an agreement with the U.S. Postal Service on April 1, 2024, under which UPS will become USPS’s primary air cargo provider in the U.S. UPS expects related revenue and expenses to be reported in Supply Chain Solutions and expects air-network expense allocation to that segment to increase beginning in Q2.
Outlook, risks and unusual items
- Management expects Q2 earnings to be lower than Q2 2023, primarily due to first-year Teamsters contract labor costs, and anticipates a return to operating profit growth in the second half of 2024. It expects U.S. domestic daily volume to increase through the remainder of the year; international volume to be relatively flat in Q2 and improve in the second half, dependent on macroeconomic conditions.
- UPS expects 2024 capital expenditures of approximately $4.5 billion, with about half allocated to network enhancement and technology initiatives. It does not currently anticipate share repurchases in 2024.
- Q1 included $86 million of transformation and other costs and $48 million of asset impairment charges. The impairment charges included a $41 million write-down of Bomi-related trade names and $7 million for software licenses. UPS also recorded $46 million of transformation costs; the $87 million separation-cost accrual is expected to be paid during 2024.
- The SEC is investigating UPS’s impairment analysis related to the 2021 sale of UPS Freight. UPS disclosed that the SEC staff disagreed with the timing of the 2020 impairment and that discussions toward a possible negotiated resolution began in March 2024. The company has accrued its best estimate and does not expect resolution to materially affect its financial condition, results or liquidity.
- UPS reported $93 million of restricted cash related primarily to an Italian tax-authority challenge concerning VAT deductions; the company says it has meritorious defenses. Certain legal matters have losses that UPS cannot estimate. Approximately $1.5 billion of goodwill in Global Freight Forwarding, Coyote and Roadie has limited fair-value headroom and greater potential impairment risk; no impairment was considered more likely than not at quarter-end.
- Other risks include macroeconomic and geopolitical conditions, competition, labor disruption, fuel and foreign-exchange volatility, cybersecurity, climate-related impacts, pension obligations and litigation. UPS said there were no material changes to its previously disclosed risk factors.
Important facts for investors to verify
- Whether package volumes and demand improve as management expects, and whether second-half operating profit growth materializes.
- How Teamsters contract costs, productivity initiatives and the USPS air-cargo agreement affect margins and segment expense allocations.
- Whether the SEC investigation or Italian VAT matter results in costs beyond current accruals, and whether goodwill or the Coyote trade name requires future impairment.
- How planned capital spending, dividends, debt maturities and cash generation affect liquidity through the remainder of 2024.
The filing provides management expectations but no explicit full-year revenue or EPS guidance.