UPS saw a decline in package volume and earnings in Q2 due to reduced Amazon business, international tariffs, and missed savings targets. Average daily domestic package volume fell 7.3%, revenue dropped 2.7% to $21.2 billion. Adjusted operating income was down 9.1% with EPS of $1.55, slightly beating Wall Street expectations.
CEO Carol Tomé attributed the decline to soft industrial activity, U.S. tariffs, and uncertain consumer sentiment. The company is focusing on improving revenue quality as domestic revenue dropped just 0.8%. Ground Saver volume declined 23.3% as UPS raised prices on basic economy products for e-commerce companies.
Total air volume dropped 11.6%, ground volume was down 6.6%. Ground Saver volume fell 23.3% as UPS raised prices. Delivery expenses rose $85 million due to more stops than projected, affecting profitability. UPS’s international parcel business is about a fifth the size of the domestic operation by volume.
UPS adjusted its network in response to changing tariffs, adding or canceling flights. The U.S. crackdown on Chinese imports led to a 35% drop in average daily volumes on the China-U.S. trade lane. The company doubled capacity between India and Europe. The Supply Chain Solutions business saw a decline in revenue due to the impact of tariffs.
UPS’s acquisition of Estafeta in Mexico has faced delays but remains confident in the expansion opportunity. The company has conducted over 600 supply chain mapping assessments to help customers evaluate reshoring options. Through the first half, UPS has closed 74 package distribution centers as part of a consolidation initiative.
In April, UPS announced plans to shed 20,000 jobs and 25 million work hours due to reduced Amazon volumes. The attrition rate in Q2 was lower than expected as workers hesitate to take exit packages. 9,500 positions have been eliminated so far out of 490,000 total employees. Under the Teamsters contract, employees can follow work to new locations, with a possible decrease in hours. UPS offered a voluntary separation program to package car drivers, despite the union’s advice against accepting the $1,800 offer per year of service. UPS expects to save $3.5 billion through network optimization and process redesign.
With 85% of UPS drivers at the top pay scale, the company anticipates a 30% volume decline year over year due to reducing Amazon volume. UPS implemented a global digital payment system and is working with Amazon to ensure a smooth transition for customers. 64% of UPS volume went through automated facilities in the second quarter.
Amid uncertainty, UPS refrains from giving revenue or profit guidance for the year. July volumes were strong, possibly due to events like Amazon Prime Days and tariff deadlines. Small businesses may delay orders if tariff risks increase. UPS is adjusting its network to scale efficiently for peak season and lower costs.
Read more at Yahoo Finance: UPS posts tepid results amid tariff, restructuring challenges