UPS Suffers Q3 Revenue Drop, Lowers Guidance Due To Unfavorable Macro Conditions

Zinger Key Points
  • UPS reaffirmed its capital allocation plans and expects capital expenditures to be about $5.3 billion.
  • UPS recently bought Happy Returns from PayPal for an undisclosed price.

United Parcel Service Inc UPS reported a third-quarter (Q3) fiscal 2023 revenue decline of 12.8% year-over-year to $21.06 billion, missing the consensus of $21.45 billion.

Adjusted EPS was $1.57, down from $2.99 in 3Q22, beating the consensus of $1.52.

Adjusted average revenue per piece increased 1.5% Y/Y to $13.78 for the quarter.

Consolidated operating profit was $1.62 billion, down 48.7Y/Y and $1.65 billion on an adjusted basis (-47.5%) Y/Y.

U.S. Domestic Segment revenue fell 11.1% Y/Y to $13.66 billion, driven by an 11.5% decrease in average daily volume. The adjusted operating margin stood at 4.9%.

International Segment revenue decreased by 11.1% Y/Y to $4.27 billion, owing to a 6.6% Y/Y decline in average daily volume and continued softness on Asia trade lanes. The adjusted operating margin was 15.8%.

Supply Chain Solutions Segment revenue decreased by 21.4% to $3.13 billion due to market rate and volume declines in forwarding business, and the adjusted operating margin was 8.8%.

Adjusted total debt/adjusted EBITDA for the trailing twelve months was 1.81.

UPS' operating cash flow for nine months ended September 30, 2023, totaled $7.83 billion, and Free cash flow was $4.89 billion.

The Q3 results included an after-tax charge of $219 million comprised of a one-time payment of $46 million to certain U.S.-based non-union part-time supervisors, transformation and other charges of $70 million, and non-cash goodwill impairment charges of $103 million.

UPS chief executive Carol Tomé blamed "unfavorable macro-economic conditions" for negatively impacting global demand in the quarter.

The company's U.S. labor contract was "fully ratified in early September and volume that diverted during our labor negotiations is starting to return to our network," Tomé added.

UPS updated its FY23 consolidated revenue and adjusted operating margin targets to reflect global macroeconomic uncertainty.

FY23 Outlook, lowered: UPS now expects consolidated revenue to be between $91.3 billion and $92.3 billion (prior $93 billion) Vs. consensus of $92.76 billion and sees an adjusted operating margin between 10.8% and 11.3% (prior 11.8%).

The company reaffirmed its capital allocation plans and expects capital expenditures to be about $5.3 billion and dividend payments to be around $5.4 billion.

Now expects share repurchases to be around $2.25 billion, from the prior expectation of $3 billion.

UPS bought Happy Returns from PayPal PYPL for an undisclosed price. This acquisition will expand UPS's returns footprint and enhance digital solutions for shippers and consumers.

Price Action: UPS shares are trading lower by 4.72% at $140 premarket on Thursday.

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