Atlanta-based global freight transportation and logistics bellwether UPS announced strong second quarter earnings results earlier today.
Quarterly revenue—at $23.4 billion—increased 14.5% annually, and adjusted earnings per share—at $3.06—saw a 43.7% annual gain, topping Wall Street expectations of $2.81. Operating profit—at $3.258 billion—rose 47.3%.
“Our better, not bigger framework is enabling consistently high service levels and producing improved financial results,” said UPS CEO Carol Tomé on the company’s earnings call earlier today. “Our team is truly moving our roll forward by delivering what matters. More specifically, we are winning in the most attractive parts of the markets with new capabilities, like our fastest ground ever weekend initiatives and improvements in our customer experience journey. We are continuing to deliver lifesaving COVID-19 vaccines and our healthcare growth initiatives is gaining momentum. We are also driving sustainable revenue per piece growth through targeted revenue quality strategies. And lastly, we are driving productivity improvements in the network and implementing targeted transformational expense reductions.”
Individual segment results for Q1:
On the earnings call, CEO Tomé explained that the decline in U.S. average daily volume was expected, because of tough annual comparisons, due to the jump in e-commerce related volume last year, while adding that UPS’s revenue quality in the U.S. was much improved due to a change in customer mix as well as its revenue quality strategies.
Addressing UPS’s customer first, people-led innovation-driven strategy, Tomé said UPS is striving to provide its customers with the best digital experience powered by its global smart logistics network.
“Customer first is about creating a frictionless customer experience and building the capabilities that matter the most to our customers,” she said. “During the second quarter, Saturday ground delivery volume grew 13% as we continued expanding our weekend coverage. This is an example of better not bigger, as we are expanding service with very little capital spending. We are currently halfway through our efforts to expand our existing centers and turn on Saturday operations in more than 200 additional centers. By the end of October of this year, we will cover about 90% of the U.S. population on Saturdays, which will further extend our market leading Saturday commercial delivery and pickup services and support our ongoing Sunday delivery services.”
UPS CFO Brian Newman said on the call that in the U.S. domestic, its mix improvement and other revenue quality initiatives, as well as productivity efforts continued to drive strong results.
“As expected, last year’s surge in essential goods delivered to homes created tough comparisons on a year-over-year basis,” he said. “As a result, total average daily volume in the U.S. in the second quarter of this year was down 619,000 pieces per day or 2.9% due to a decline in SurePost volume of 1.3 million packages per day. The decline in SurePost volume was partially offset by double-digit percentage growth in ground commercial and next day air volume.”
Addressing Peak Season, Tomé said that UPS’s peak planning is well underway.
“The good news is from an operating perspective, we have one additional operating day this year, which helped us,” she noted. “We are lining up the aircraft that we need to lease to manage the volume. We’re lining all the rental equipment that we need to have in place to handle the volume. So we’re — every day we’re working on peak. I know it’s just July, but we’re working on peak every day. And as we work with our customers, we want to ensure that we meet their needs. So we’re sitting down with — there are out 300 customers who make up that peak volume surge and we’re sitting down with each of them understanding what their projection, what their promotions, how are they thinking about the holiday season and really trying to work with them so that we provide to them the same outstanding and excellent service that we give to them last year. We are laser-focused on making them happy.”
Jerry Hempstead, president of Hempstead Consulting, said that ground packages are the coal that fires the engine of UPS.
“Operations is still going to spend $4 billion in capex,” he said. “So, if they want the money machine to earn more money possibly, it’s not going to be from growing the book of business but in continually raising prices (mostly accessorials). Historically operations will eat up the profits, and you need ever increasing volume. It’s going to be interesting to see how this plays out.”
What’s more, Hempstead also cited what he described as the amazing increase in the revenue per piece for ground transactions.
“It went from $8.71 in Q2 of 2020 to $9.86 on Q2 of 2021,” he said. “This is a 13% y/o/y increase. What ever happened to the GRI of 4.9% announced in November. Air went from $16.62 to $18.53 (11.5%). Deferred from $12.98 to $11.92. The most interesting observation is that UPS has finally hit a volume inflection point. Daily Ground volume dropped from 17,560,000 to 16,856,000 deferred dropped from 1,702,000 to 1,581,000.”