With a dismal 2023 in its rearview mirror, UPS is making some major changes to boost profit margins in the year ahead. For example, the company has engaged in a whirlwind of layoffs over the past several months as evidenced by the six WARN layoff letters that have already been issued this year — compared to just one in 2023, according to WARNTracker.com.
Here, we’ll take a quick look at UPS financials, the company’s new supply chain platform, and strategic initiatives that were recently announced.
2023 4Q Financial Report
In a January 30 press release, UPS announced fourth-quarter 2023 consolidated revenues of $24.9 billion — a decrease of 7.8% compared to the fourth quarter of 2022.
“Consolidated operating profit was $2.5 billion, down 22.5% compared to the fourth quarter of 2022, and down 27.1% on an adjusted basis,” UPS added. “Diluted earnings per share were $1.87 for the quarter; adjusted diluted earnings per share of $2.47 were 31.8% below the same period in 2022.”
In the U.S. domestic segment, 4Q 2023 revenue was $16,915 M — compared to $18,252 M the year prior, representing a 7.3% decrease, which the company said was “driven by a 7.4% decrease in average daily volume.”
In the international segment, 4Q 2023 revenue was $4,606 M — a 6.9% drop from 4Q 2022’s $4,950 M revenue, which UPS attributed to “an 8.3% decrease in average daily volume primarily due to softness in Europe.”
A summary of full-year consolidated results for 2023 included:
- Revenue of $91.0 billion (a decrease of 9.3%)
- Adjusted operating profit of $9.9 billion (a decrease of 28.7%)
- Operating margin of 10.0% and adjusted operating margin of 10.9%
In its 2024 outlook, UPS said that for the full year, the company expects revenue to “range from approximately $92.0 billion to $94.5 billion and consolidated adjusted operating margin to range from approximately 10.0% to 10.6%.”
“I want to thank UPSers for providing the best on-time performance of any carrier for the sixth year in a row,” said Carol Tomé, UPS chief executive officer in the statement. “2023 was a unique and difficult year and through it all we remained focused on controlling what we could control, stayed on strategy and strengthened our foundation for future growth.”
In a March 18 letter to shareholders, Tomé reflected on some of the challenges the company has faced.
“At the beginning of the year, I said 2023 was going to be a year of resiliency, and that turned out to be true,” she wrote. “We faced challenging external business conditions that led to declining volume, revenue and operating profit in all lines of our business. I’m proud of the efforts of our nearly 500,000 employees for navigating through these challenges.”
After noting positive highlights from 2023 — as well as accomplishments within its “Customer First, People Led, and Innovation Driven” initiatives — Tomé described some of the plans for the year ahead.
“After a difficult year, we exited 2023 with some momentum, but momentum is not enough,” she said. “We are making bold moves to right size our company for the future under an initiative we call ‘Fit to Serve.’ We are exploring strategic alternatives for our truckload brokerage business known as Coyote. We are leaning into growth in the most attractive parts of the market and are continuing to drive efficiency across our integrated network. We expect market conditions to settle down in 2024 and that, coupled with our initiatives, gives us confidence that we will reverse the negative trends we experienced in 2023. …”
UPS Supply Chain Symphony®
In mid-November 2023, UPS unveiled its Supply Chain Symphony platform, “a new tool that integrates various supply chain components, including shipping, warehousing, and inventory management, into a single platform,” the press release said. “This unified approach empowers UPS customers to operate more efficiently, gain better visibility into their supply chains, and more effectively address challenges as they arise.”
“UPS Supply Chain Symphony delivers robust visibility across the UPS global portfolio of services so that our customers can view and orchestrate better outcomes,” stated Bill Seward, President of UPS Supply Chain Solutions. “This unmatched connectivity allows UPS customers to easily see their inventory levels, predict potential problems, and make strategic decisions to improve their supply chain operations. After extensive use by our customers across multiple industries, it is clear that UPS Symphony enables us to deliver even more of what matters.”
On March 8, UPS announced the launch of UPS Supply Chain Symphony® for UPS Healthcare, “a cloud-based platform designed to manage and integrate supply chain data from various operational systems, giving healthcare customers a comprehensive view of their logistics.”
“In the realm of healthcare logistics, control and visibility are more than just operational advantages-they’re vital components that determine the efficiency and success of medical supply delivery,” the release said. “As healthcare organizations expand, the complexity of their operations also increases, making the need for a comprehensive, integrative tool crucial. That’s where UPS Supply Chain Symphony® for UPS Healthcare steps in.”
Kate Gutmann, EVP and President of UPS International, Healthcare and Supply Chain Solutions, underscored the new platform’s significance: “UPS Supply Chain Symphony allows our customers to connect every aspect of their global supply chains to UPS’s intelligent logistics network. This is a game-changer that puts powerful new digital tools at their fingertips.’”
New strategic initiatives
On March 26, UPS announced new strategic initiatives and three-year financial targets that would be discussed that day at its investor and analyst conference.
Details from the press release include:
- “Under a better and bolder approach, UPS will continue its Customer First, People Led, Innovation Driven strategy, and is positioning itself to become the premium small package provider and logistics partner in the world.”
- “During the conference, UPS will highlight several strategic initiatives that will enable market share capture and expand its addressable market to drive incremental growth.”
- “In addition, the company will share details about how it will lower its cost to serve through its Network of the Future initiative, a plan that will optimize and further automate its core integrated network.”
“We executed the strategy we set forth nearly three years ago by changing almost every aspect of our business. After coming off a difficult market in 2023, the small package industry is poised to return to growth in 2024 and beyond. Over the next three years, we plan to make bold moves to create a growth flywheel in premium markets, while at the same time drive higher productivity and efficiency,” said Tomé. “The growth and productivity initiatives we are executing will result in higher revenue, expanded operating margins and increased free cash flow to deliver long-term value to our shareowners.”
For its 2026 financial targets, UPS noted that the company “provides certain guidance on an adjusted (non-GAAP) basis because it is not possible to predict or provide a reconciliation reflecting the impact of future unanticipated events, which would be included in reported (GAAP) results and could be material.”
During the conference, UPS said it planned to discuss the following 2026 financial targets:
- Consolidated revenue ranging from approximately $108 billion to approximately $114 billion
- Consolidated adjusted* operating margin above 13%
- U.S. Domestic Package segment adjusted* operating margin of at least 12%
- International Package segment adjusted* operating margin between 18% and 19%
- Supply Chain Solutions adjusted* operating margin of around 12%
- Free cash flow* of between $17 billion and $18 billion
- Capital spending from 2024–2026 of approximately 5.5% of total revenue
*Represents a non-GAAP financial measure. See the appendix to this release for a discussion of non-GAAP financial measures.
In a Logistics Management article, Jeff Berman provided additional details about the company’s Investor Day.
He said “one key difference” Tomé highlighted was “reducing the company’s dependence on growth for what was one company and instead expanded its portfolio of offerings to other customer segments, beginning with healthcare. That was done through its acquisition of Bomi and MNX Global Logistics, expanding UPS Premier to 48 countries, and growing its healthcare facility footprint to more than 17 million square-feet, enabling UPS to generate $10 billion in 2023 healthcare revenue.”
For additional details, please see Berman’s full article.
In his reporting on UPS Investor Day, Supply Chain Dive’s Max Garland cited a “top executive” with the company, who described plans to “close around 200 U.S. facilities as it shifts more volume into a growing number of automated package hubs.”
Citing Nando Cesarone, EVP and President U.S., he said UPS is “consolidating locations as part of its ‘Network of the Future’ initiative, which aims to reduce UPS’ reliance on manual labor in its package sortation operations and save $3 billion by the end of 2028.”
“Additionally, UPS is closing 40 sorts this year — up from 30 in 2023 — and seeks to automate other aspects of its operations, such as dispatching for package cars and feeder trucks moving volume in its network,” Garland wrote.
“Network of the Future is targeting all activities for automation within our four walls,” Cesarone reportedly said. “These building consolidations and automations yield real savings. For example, we’ll have fewer feeder runs. We’ll be able to eliminate both a.m. and p.m. ground and air feeds in many, many locations.”
For additional details, please see Garland’s full post.
If the most recent news from UPS is any indication, UPS may indeed enjoy a brighter 2024 and beyond.
On April 1 the company announced it has been “awarded a significant air cargo contract by the United States Postal Service (USPS). This award is effective immediately and greatly expands the existing relationship between the two organizations. Following a transition period, UPS will become the USPS’s primary air cargo provider and move the majority of USPS air cargo in the US.”
“Together UPS and USPS have developed an innovative solution that is mutually beneficial and complements our unique, reliable and efficient integrated network,” said Tomé.
UPS will be replacing FedEx, which has held the contract for over 20 years.
