UPS Gains Margin, Plans Strong Peak, But Remains Mired in Uncertainty
The only thing you need to know about what UPS thinks about global trade at the moment is they are still not providing earnings guidance.
CEO Carol Tome' must like she has been in wind-down mode most of her UPS career. It's what happens when your largest customer, Amazon continues to wind down (from a % basis) its volume and your biggest labor contract increases your costs within a few years of you starting. 3 quarters into a 6 quarter Amazon drawdown.
So you do what you can - better not bigger is the mantra for UPS across the board. Fewer parcels (average daily volume down 12%), higher margins. Fewer facilities (closed 93 this year), higher throughput.
Recently decided fewer humans, too, and got rid of about 30k+ employees.
* Trade lanes are changing:
- China to US dropped 34% y/y due to deminimis. But China to rest of world increased 20+%.
- Doubled capacity between India and Europe.
* Operating margin stands at 8.8%
Notable commentary:
* Expects customer attrition to accelerate.
* SMBs notably impacted more in this space due to tough credit markets and cash flow.
* Asked about the Amazon glide down. Tome clarified, "the attrition rate is not where we thought it would be," and that it had accelerated. Amazon's total volume decline in the third quarter was 21.2% compared to 13% for the first half of the year.
* Planning to take about $3.5B in cost out of the system.
* Top 100 customers are 80% of their peak surge during holiday. But peak volumes this year will decline due to Amazon glide-down. Still, early forecasts from non-Amazon customers plan for a surge in peak volume.
* UPS eliminated about 48,000 jobs this year - big number.
All told, I think UPS is caught on a roller coaster at the moment, where each action in global trade affects shippers, which in turn affects UPS. Amazon glide-down is also a huge backdrop, as is the rise in healthcare as a larger component of logistics.
